PRODUCTION.

Southland Times, Issue 20081, 19 January 1927, Page 7

PRODUCTION.

To the Editor. Sir,--To answer the question put in your editorial of the 15th involves dealing with Ihe problem you outline. tabulation will help us, under Customs taxation the position you cite is as follows:—A: Landed cost £lOO, Customs taxation £5, Income tax £5, operating charges £2O, profit 10 per cent. £l3, selling price £143; B: Landed cost £lOO, Customs taxation £5, Income tax nil, operating charges £2O, profit 10 per cent. £l2 10/-, selling price £137 10/-. It is clear A in the long run will have to reduce his selling price to £137 10/- if he wants to retain his business against B; other things being equal he pays his £5 Income tax and foregoes his 10 per cent, on that sum. We will now tabulate the position with an Income but no Customs taxation:— A: Landed cost £lOO, Customs tax nil, Income tax £lO, operating charges £l5, profit JO per cent. £l2 10/-, selling price £137 10/-; B: Landed cost £lOO, Customs tax nil, Income tax £5, operating charges £!•>, profit 10 per cent. £l2, selling price £132; C: Landed cost £lOO, Customs tax nil. Income tax nil, operating charges £l5, profit 10 per cent. £ll 10/-, selling price £126 10/-. It is not best, to suppose that operating charges are in any case at a minimum, if under Customs taxation the figure is £2O under Income tax it will be less as not only will certain charges in connection with clearing goods be reduced, but salaries and wages will be lower on account of the lower prices of commodities. The exact figure is not ven- material, bitf it is clear that other things being equal A and B will have to come down to the C selling price to retain their business.

Now for your question regarding either A B or C firms. Suppose as “Suum Cuique” says he can lower his operating costs by increased efficiency, does it not appear that the new firm can do the same thing? It is very possible C’s operating costs can be lowered by increased efficiency, it is quite certain A and B’s can. Included in the figures under A and B’s operating costs or profits column are incomes over £3OO, that must be so or there would be no Income tax as with C. Now’ A and B are not going to low’er their incomes or profits if they can avoid doing so, to retain business they must ultimately reduce their selling price to C's figure. If they do this they cease

passing on the Income tax and content themselves with a reduced income or profit. The alternative is to increase efficiency, come down to C’s selling price and endeavour to keep up income and profits by cutting operating costs with a larger turnover. By doing this they do not pass Income tax on; they are paid for being more efficient than C. Improved efficiency is not induced by Customs taxation. A, B and C are unanimous in passing it on. Customs taxation offers no way of escape to the farmer; Income tax does; he deals with C, the New Zealand non-Income tax payer overseas distributor. The farmer benefits by a reduced selling price by not paying taxation which ought to be equally drawn from all incomes over a fixed figure and the farmer who does not draw that figure by paying either Customs or Income taxation. Profits in business are excessive by reason of the fact that taxation is passed on to te farmer. Hence the prime cause of the drift from country to town.

If w r e take an extreme assumption that ' all firms come to C’s selling price and moreover fail to qualify as Income tax payers the Consolidated Fund will draw from the farmer on hi/?' profits what it cannot get from other classes. Profits and all incomes bearing taxation come out of the market value received from primary produce, if the fanner’s cost of production is cut dowm, he is successful in getting a larger share of that market value, he will have taxable income which other classes have failed to get. I want to indicate to “Old Hand” and “W.M.” that the explanation of what the former calks the “snowball” that is the big difference between what the consumer pays and the producer receives lies in the fact that capital and labour is induced into the towns by unequal taxation. If for every farmer there is one man in the town, excluding the manufacturer, to handle produce away and commodities to him, it follows the producer’s share must be a good deal less than the figure paid by consumers. If there are two men the producer will receive still less, and so on. Up to a certain point competition begets efficiency, the time comes however when it begets inefficiency. Take a locality, of say, 3000 consumers served by two stores, the wages and incomes of which total £9OO. A third storekeeper commences business making wages, etc., £1350, the turnover then for each store is, say, from 1000 consumers instead of formerly 1500. Each 1000 consumers paid £3OO, they now pay £450 in wages and salaries. Turnover in the stores having fallen profits must rise to provide the same wages and salaries. The taxation system which New Zealand has adopted encourages the drift from rural areas. The foregoing argument is based upon two principles of common sense:—

(a) That buyers will buy, or always seek to buy in the cheapest market. (b) That sellers will not add to the selling price an item of taxation they do not pay and thereby lose business.—l am, SUUM CUIQUE.

The English mile and the American mile are the only two that are the same.