TAXATION.

Shannon News, 30 September 1924, Page 1

TAXATION.

THE PASSING-ON PROCESS. COMPANIES AN*) THE PUBLIC.

The statement made. by Sir George

Elliott, the chairman of the, Bank of New Zealand, at . the annual meeting of the shareholders of the bank last year, regarding the effect of an excessive income (tax upon the cost of money and commodities,, already has been quoted; and it will bear repetition as an introduction to a brief review of the inevitable - passing on process. "In estimating costs,” Sir George said, “if must not be forgotten that income tax is as much taken into account as are wages or rents, and that in the end it is the public that pays the tax." This statement rested on actual figures which doubtless were known to Sir George Elliott at the time. Th e average net profits- of the two New Zealand banks fox the two years immediately before the war, 1913 and 1914, when taxation was low, amounted to 10.37 per cent upon their capital and undivided profits, while the average net profit of the three Australia banks calculated oh the same basis amounted to .10.i8 per cent. The averages for the last two years, 1922 and 1923, when taxation on New Zealand, banks was much higher than that on Australian banks, were 9.86 per ceht on the capital and undivided profits of the New Zealand banks and 8.67 pet cent oh, the capital and undivided profits of the Australian banks. Prom these figures it is obvious that t had the taxation on the New Zealand banks during the two years been on the sapie, basis as the taxation on the (Australian bahks, and their charges and their expenses had been the same,, their net profit.for the , two years would have averaged per cent on their paid-up capital and undivided profits, or nearly three pet cent more than they actually obtain- ) ed. On the other hand, if the Australian banks had .made no increase in their gross profit, their net profit would have been reduced from 8.67 per cent to *6.26 per cent. * These figures, coupled withj Sir George Elliott’s frank statement, make it per- i fectly plain that the public pay the taxation upon th e banks. Taxing Companies. Then take the case of large trading companies. The. high taxation imposed upon these companies means that the capital invested in them must contribute far mor e to the State than does the great bulk of the capital in- 1 vested in other directions. The directors of these concerns have to show to their shareholders that they " are receiving as good a return for j their money as they could expect to ] obtain from other investments in- ] volviner-similar risks. It follows that if a much higher tax is levied on the > ; profits made by companies than on the profits derived from other sources, j the directors of companies must widen j their margin of profit sufficiently to 1 enable them to pay the additional tax *< and at the same time make a reasonable return to their shareholders. If a 1 company fails to do this, its share- ’ holders will become dissatisfied, and, ( if the failure is long continued, will insist upon a change in the management and policy of the company. Company capital, however employed, must in the long run earn sufficient to justify the existence of the com- - pany in which it Is invested, or the , company must go out of business. J This means, in short, that ultimately , the tax, or at least that portion of it that exceeds the average tax on other' investments, must be passed on to the general public. Then, of course, the tax becomes an indirect tax,,-just as the other “costs” mentioned by Sir George Elliott.are, and not a direct tax at all. Jt would be absurd to ex-, pect the individuals owning the company—the shareholders, that is—to go on indefinitely paying 6/ in the pound , by way of income tax on their investments, when by placing their money . elsewhere they could escape with an | average tax of 7fd in the pound. Those companies that can shift the ’ tax on to other shoulders, or enough of it to enable them to i give as good a net return ' as the investments taxed at an average rat e of 7fd in the pound, will continue in business, but those that cannot do this must either turn to some other trade or industry, in which j they can pass on their excessive bur* * den, or drift into liquidation. There 1 ise no other alternative.

A Disinterested Witness. Mr J. B. Condliffe, professor oP economics at Canterbury University College, Whom no one will suspect of being swayed in his opinion by any sordid motive, made this point so clear in the evidence he gave before the Taxation Commission that no excuse need be offered for quoting a paragraph or two from his evidence. “The assessment of taxation upon the income of an individual,” he said, “is a direct tax that can only under rare 1 circumstances be shifted either back- j ward to the suppliers or forward to * the consumers. , . To sum up, the incidence of the present company tax Varies from industry, to industry. A large part of it is borne by the farming community in the shape of higher charges for essential services. |A large part of it has been passed on to consumers iii the shape of higher prices, which have increased the cost of liv-

ing, and thereby stimulated demands for higher wages, thus starting a vicious circle. Some part of it has been borne by shareholders, and this has been capitalised by a fall in the value of their securities. ... Different classes of consumers are affected in varying degrees, the worst effect being on farmers and receivers of fixed incomes. Wage earners also suffer because wages lag behind the cost- of living." There is thp whole,matter in a nutshell presented by a disinterested witness who has gained high distinction by his capable analysis and exposition of economic problems. But in face of all this, it still is being urged in some quarters that companies should be taxed at a higher rate than individuals, regardless of the fact as clearly demonstrated by Professor Condliffe, that the penalty imposed upon companies must be borne by the gentral public. This point must be reserved for separate .treatment.-