THE INCIDENCE OF TAXATION

Otago Witness, Issue 2892, 18 August 1909, Page 34

THE INCIDENCE OF TAXATION

DR FINDLAY AT FEILDING. Speaking at Feilding on the 6th inst., the Attorney-general discussed again the subject of the incidence of taxation, direct and indirect. He said: I was reminded the • other day by a courteous newspaper critic that taxation wa6 not a pleasant subject for a public platform. I admit it. Dental operations even though absolutely necessary for bodily i health cap scarcely be discussed before the patient with much entertainment. ~ As regards taxation, "we are all patients. The extraction is almost painless through the Customs, but direct taxation hurts us like the very devil. The bigger the corpus the louder the cry. But since taxation is not only inevitable but one of the most important questions in a progressive State, the better we understand it the better for ourselves. There is plenty of room for clearer thinking in this connection. The--first essential to any rational discussion on taxation in New Zealand is to ask for what purposes the money here is > raised. These purposes may be broadly divided into two classe. 1. Necessary - State services. 2. The development" of the country and the promotion of the material welfare of special classes of the community. Under the first class we would find the maintenance of our system of justice — police, prisons, defence, hospitals, asylums, and other services essential to law, order, and civilis£>d life. In short, alb .those and only those State functions which the consistent individualist would permit." • Taxation for these purposes is mainly taxation for the protection of the taxpayers' life, liberty, and property. It is properly a toll exacted from each -"in proportion" to use the words of Adam Smith's canon, "to the 1 revenue enjoyed under the protection of the State." It is essentially a payment for protection. Now I come to the second purpose for which revenue may be raised: The dovelopment of the country and the promo- ' tion of the material welfare of special classes oE the community. Here the tax should be levied, at least to some extent on the private property which benefits most by such expenditure In this case it is not a toll for protection. It is a return to the State of some portion of the wealth which the public expenditure has increased in private hands This distinction will be made clearer by an • illustration. We pay about £170,000 a year for police protection. Suppose I live in Wellington, but own a large estate in this island through which the Government has made roads and railways. My contribution by way of tax to the expenditure for police is surely on n different "basis from my contribution by way of tax to pay interest on the loan out of which the State has made those roade and railways. In Adam Smith's day • the State did nothing to increase privafp wealth except to defend it. Now. in many wave in New Zealand the State is -directly increasing private wealth by public expenditure. Private wealth in New Zealand has increased, *the Commissioner of Taxes tells us, by over £250,000,000 in 17 years. During that time, out of loan and revenue we hay© spent about 30 millions on developmental work of all kind, How much has this expenditure of 30 millions incraased private wealth in New Zealand ? •And is it not fair that some part of that increase should be returned to the State i to help to pay the interest on the loan (moneys which produced that increase. It : is from considerations like these that a new theory of taxation has arisen and is now being" adopted by the British Government. This new theory is that a taxpayer should i contribute to the necessary revenues of the State in * some proportion to the extent to wihioh the operations of tho State have enhanced the value of tho property.- Hence the 'bill now before the British House of Commons provides for an immediate valuation of all real estate in the kingdom and thereafter, on sale or on the death of tho owner, the State takes 20 per cent, of the increased unimproved value. I am not advocating this. I merely invoke- it as an illustrat'on of how far in England, where the State carries on very little of the enormous development which it does here, this new view of taxation has been adopted. But I want to impress this "iew further hy reference to the present Government's borrowing policy. We have borrowed in 18 years some 27 millions — mainly spent on developing and settling the lands ci Now Zealand. We hear much against State borrowing, and I admit the virtue of selfreliance, but suppose these 27 millions had during the last 18 years been raised by .taxation in New Zealand, upon whom -should such taxation hav-e fallen? Upon the whole population," including the 800,000 or 900,000 people who have no land or sufficient m^ans to tax, or upon those whose wealth was largely increased by the proceeds of such taxation? If we stopped borrowing to-day one or two things must happen : either the opening ud. development, and settlement of the lands of New Zealand must be largclv arrested, or the money j required to maintain the present \igorous development aiust bo raised by increased , taxation. Upon whom is that taxation to fall? Our poliov and our answer can be ' found in the fact that we have steadily \ remitted Customs duty upon all the neces- ' saries and reasonable comfort* tho people as a whole consume. But «v ore told that ; the money requisite fo>- development can be obtained without further taxation hv mor» economy in the administration of Uo\ern- i mnent. How much* We have ro-tently cut down public expenditure to tho barest minimum consistent with efficiency in our public service I'nloj-s you sacrifice the service, I believe further reductions than thoss contemplated are impossible. But we are told the railways are not paying, and that £500,000 a year could and should bo got out of them. How? The Hon Mr Millar has done and is doing his best to run our rail- [ ways efficiently and economically Further J savings may be effected, .but to make an- | other £500,000 out of our railways can be , done in one way, and one way only, and [ that is by raising, by probably 50 per cent., j the rates for passengers and freights. Who , would pay this increase? Mainly those ' ,«ottled in the country and the country ' towns — certainly not the people of our large towns and cities, only a small proportion , of whom use the railways at all. Let it be clearly understood, first, that we can get , more revenue from our railways, but it ran be got only by increased rates, and that

' increase must bo paid mainly by these -the Opposition claim to represent. I pass now to the past career of the taxation policy of the Liberal Government. I do not propose to repeat what I said in Timaru and what has been reported in the press. . I desire to content myself with answering some criticism of Mr Massey in this connection. . In Timaru lately I stated that the great mass of our people pay taxes at a much lower rate now than they did - when the Liberal j Government came into office in 1891, and I declared that this reduction was between 25 and 30 per cent, on the amount previously paid. I stated so unequivocally. I produced tables and reports by the Registrar-general to justify this statement, but Mr Massey has since said that I am all wrong, and that the taxation has been j increased upon the great mass of our I people. Let me use Mr Massey's own , words in a statement made by him. Deal- ! ing with the increase of taxation, he says : "\)r Findlay tried to show that the taxation upon the great mass of our people has been reduced by 20 to 25 per cent., and that it waa absurd to imply that taxation has increased generally the burdens _ of the people during the years the present ' Government has been in office. How in- ' correct this statement is can easily be seen : by reference to the Year Book, prepared, t as its title page says, under instructions j from the Right Hon. Sir Joseph Ward. It contains a table showing the total taxation collected per head of the population from ! 1891 to 1908. In 1891 it was £3 9s 2d, and Jin 1908 £5 0s 4d. These are official figures I supplied by the Government's own j officers, and cannot be twisted to support 1 the inferences - which the Attorney-general wishes the public to draw." Mr Massey thus repeats a blunder which I had hoped my Timaru speech would have j fully exposed to him. It is important that careful note should be made of what I , said and, of what Mir Magsey denies. I ' said, .first, that the great mass of our i people were paying less taxation now than 1 formerly — that is. of course, the majority of ! our population have had the rate of i ation upon them reduced. TMr Masspy j denies this He invokes the Tear Bcok, j and seems to think that that establishes his | denial. But what does the Year F*sk do? ] It ascertains the total amount derived by I the Slate from direct and indirect taxatio i ; „ it €Een proceeds to carry out a very simple sum in arithmetic : it divides the total o F such sum derivedfby taxation by the total | number of people, and says that th.3 total co divided wqrks out co much per head of population. ' But the" Year ' Eoo'c I nowhere pretends or suggests that each of I the population, or the majority of the popu j lation, pay at that Tate. This would be l obvinrely absurd, and yet this is what in j effect Mr Maesey implies. I said the masse* i pay less now than formerly. He says they | pay more, because he finds this sum in ■ simple arithmetic in the Year-book. Let me expose, if really necessary, the absurdity tof this process of inference: Suppose tho American millionaire. Rockefeller, lived j here, and under our , system we "taxed only millionaires, that he- was the- only millionaire, and consequently paid tho whole sum wo required for the" purposes of government. Obviously, on this assumption, none of the rest of tho population would pay any 1 taxes; yet, if you divided the total popu- ! lation injo the 6um paid by Mr -Rockefeller ' as such taxation it would, in the case sup- | posed, run out at £4 or £5 per head. This j process of stating tifo© taxation on the popu- , lation of New 55ealand under Mr Roekej feller's contribution as £4- or £5 a-aead is 'scarcely more ridiculous than- that relied ! upon by Mr Massey to show what the j masses of the people in New Zealasid are actually' paving in taxation. To come I neanev to the', aotual facts in New Zealand; for the purpose of illustrating Mr Massey's error, let us suppose that taxation I in this ooiintrv was direct taxation only, i I and was levied drily upon tho larger jncomes and the langer estates. Here, again, ie would, of course, be absurd to divide i the total amount produoad by such taxaj tion and treat the dividend as if contril buted by th« great masses of the people, because the masses have neither large in- ' comes or large estates, and would, upon this assumption, escape taxation altogether. The same result would arjie if taxation _were confined to direct taxation or indirect (or Customs duty) jpon the expensive luxurie* which- the masses have not the means to purchase. The truth, of course, is that you can get no guide under a system such as ou-s as to. what the masses ji-r really paying in taxation by merely dividing the totil product of all our taxes by our total popu« laton. To decide whet/fer the masses are paying a higher or lower taxation than formerly you must look first at .what is taxed, and at what class purchases or" consumes it, and second, at tho rate of taxation and what class pays it. Our total population is about a million. The total number of direct taxpayers does not exceed 41,000. Direct taxation has increased during the last 10 years from £703,267 to' £1,460,299, being an increase of £757,000 — an increase borne, it will be remembered by the very limited number of direct taxpayers This increase has not baen due to any increase in rate, but to the enormous increase- in the private wealth of the Dominion. The private wealth, as I have said, is estimated as having increased einets 1891 continually by a sum not less than 250 millions T*vice as many people now pay income tax as formerly, and t\vic3 as many pay land tax as formerly. Dm ing the same perjed of the last 10 years Customs and Excise duties have increased from £2,187,859 to £2.917.462. or by a sum of about £730,000. Indirect taxation now. if cspressed per head of total pomilation. is £3 Is 3d; 10 years a«o it was ~£2 18s 2d, ! an increa-jo of 2s per head, if we divide j tho total sum contributed by the total • population But this result would be quite I misleading as a guide to what the masses j are paying even in indirect taxation, for it j will hs remim'wed that this euin includes th-3 Customs duties on all the expensive luxiinei S2ldom, if at all, consumed by the mas*e& of our people Even t>s to this increase ©f 3s. a considerable portion of it is due to the increased consumption of alcoholic drinks, and all the rest of it to an unereaso in other expensive luxuries. It is needless to remind you that the Customs rates have not been increased, but have been substantially decreased on all the main • articles of importation during ths last 10 years. 'and the reason why tho amount produced through our Customs duties has not fallen substantially is because our people are importing much more of almost every kind of commodity than they formerly diJ At Timaru I produced tables carefully prepared by the Registrar-general to show 'this beyond question. Take foodstuffs alone: In 1901 foodstuff,, of the value of £1,048,775 were imported; in 1908, £1.644,630. Ex- .

pressing these figures in terms of our total population, they work out — £1 -7s per headin 1901, and £1 14s 9d in 1908. Whereas we took in duty 6s lOd per head on- the smaller amount imported in 1901, we took only 2s s£d per head on the larger amount imported in 1908. I need not repeat 'here the carefully-prepared tables published in the pressrand quoted by me in my Timaru speech, nor need I repeat the Registrargeneral's impartial estimate- that during the last 10 years the amount paid in Customs taxation, by a worker supporting a wife and family of five - children, on an income of £4 per week- ' has Been reduced upon all imported articles used by him, his wife, and "family, from £8 9s 9d to £6 8s .4^d, or an. equivalent of about 25 per cent. In Timaru I went over the different articles consumed or used by a worker, and his .family, and showed the reduet'fim in Custom duty on each respectively. Bence I challenge my critics to demonstrate any error in my statement that, as the vast majority of our people pay to the GoveriMnent taxation only through Customs duty, and as Customs duty on all the articles commonly used by the masses of the people has been substantially reduced, the taxation, to repeat the words used by me in Timaru, and referred to by "Mr Massey, has been reduced upon the great masses of the people. If more proof were required to show that the great masses of our people have neither the income nor the land upon which they can be called upon to pay direct taxation', or, indeed, the income which would enable them to contribute largely to Customs duty t>y the consumption ot luxuries, it will be found in the fact that out of nearly 300,000 wa-ge- earners in the Dominion, the average earninga of the males are under £95 each per annum, and the females under £43 per annum; and if you take tho adults, both male and female, of our entire population, it will be found that the wages earned by the majority, not on an average but taking them independently, would' be less— probably considerably less— than £3 a week. lam including, of course, the wives of married "workers. > It will thus be obvious that the means available to them limits their consumption almost essentially to the necessaries, decencies, and usual comforts of life, and as far as- the Government could it has, by Customs' remission, lightened .the burden of taxation upon these necessaries,, decencies, and comforts.

I come back, therefore, to my main proposition, that taxation during the last 10 years in this country has brien reduced at least 25 per cent- upon the masses of our people, and that the increase shown in th© product of our tax« 6 has been due mainly to indirect taxation at the old rate ~ upon enormously increased private wealth, and, so far as it is due to Customs and excise d/u*iea, it is due to the consumption per head of drink and\ other luxuries, and to the increased amount consumed per head of other commodities. Some of my southern critics, however, have endeavoured to draw a " red herring " across the eeent, and, while not condescending to any refutation of my figures-, have declared that I must be wrong because the cost of living has increased. This ie . plainly misleading.' That- the cost of living, has increased is chiefly owing to the increase in the price of meat, bread, potatoes, butter, eggs, poultry, and similar articles of food for which taxation is in no way responsible. This argument, indeed," is parallsJ to that of fiist charginga man with having taken money out of his neighbour's till, and then, when he refutes the charge, declaring that it must be true because the money in the till doss not go so far in buying butcher's meat as it did pi-eviouely. I have thus gone to some pains to expose what I believe is a widespread and wholly erroneous inference — an inference which Mr Massey himself, who should surely know better, has declared to be true— namely, that the Liberal Government has placed upon the masses of the people during the last 10 years an increased burden of taxation.

Mr Massey tells me that if I paid mere attention to the political economy of Adam Smith I would know that one eeotion of the community cannot Jo compelled to pay more than its share of taxation, without the whole community being affected. Mr Massey gives us no idea of what the shares should be, but dcelares that an increased taxation of the land owners affects tho wages fund. In other words, if the unim' proved value (for that is all the land tax is levied on) of a large "estate has increassd, say 25 per cent., and the owner, at the old rate of taxation, has consequently to pay more to the State, that payment diminishes the amoimt of the wages fund, that is, of the fund available to employ labour. This idea of the wage fund assumes that tho amount, of wages which oan be, and will be. paid in a country in, say, a year, is fixed by the amount of capital existing th-ero- at the time. In Mr Massey's own pet phrase, " What nonsense !" If tho income of a landowner, or anyone else, ss reduced by taxation or by any other cause, the first hhinjr he reduces is not the profitable labour foe employs, but the luxuriss he or his household can well do without. But apart from this, .Mr Massey ought to know that this view of the wag-26 fund is now utterly exploded. Mr Mateey bases this pa,rt of his criticism upon Adam Smith's text book. I presume he meansthe- " Wealth of Nations." That was published over 130 years ago — about the data from which Mr Massey seems to draw iro't of Ins political principles. 1 am not going to dolay now to give the well-known refutation of this wages fund fallacy. Let mo refer Mr Massey to any of th" rerojnis/>d modern text-books on political M-ieneo for this refutation. Take, for rx- \ ample, two of the best — Marshall's " Principles of Economics " and Walker's " Po'itical Economy." Marshall says that tli'e theory of the wages fund derived its origin from the careless phrases of Adam Smith and Rioardo, used by them whan wishing to lay stress on the imnortance to iho labourer of those stores of wealth by which lie is supported while producing fiu-thd-wealth. "In this form," Mar? ha 11 pays, "the theory was used by some capitalist who wore anxious to prevent the working clas=cs from endeavouring to gel higher wage*, and who were glad to l>e able to quota the authority of political economy on their side, and in this form it is ctiainlv fal«e " Yet this is the gense m which Mr Mr.s^ov n«/>s it. Mr Walker, after exposing conclusively the whole fallacy, concludes: "It would be brutal to infl'cfc further blo'.vs upon a body f>o examirare as the theory of tho wa?«r3 fund." Mr Massev really betrays his devotion to that grand old fiction of the wealthy chu_<H :

that if you take from the wealthy,- Ifcf taxation or _ otherwise, you necessarily reduce' the fund they devote to .wages; and so the worker suffers. I do wish Mr* Massey would bring his political economy up-to-date. Who knows but he mi^Jit then agree even with my views on taxation?