WAGES & TAXATION

Wairarapa Times-Age, 24 May 1938, Page 8

WAGES & TAXATION

THE FACTOR OF PURCHASING POWER

RECENT RISES IN LIVING COSTS.

COMPARISON WITH POSITION IN AUSTRALIA.

“The oft-stated proposition, recently repeated by the Prime Minister, that ‘it is not what is taken in taxation but what is left that matters,’ as meaning that, on balance, there is a net advantage to the taxpayers, cannot stand alone, but must be linked with the question of purchasing power,” say the Associated Chambers of Commerce of New Zealand in a statement issued yesterday.

“The recent growth in the value of New Zealand’s national production and of money incomes has been pointed to as justification for the present heavy rates of taxation. The Minister of Finance, in his recent public address, said that ‘it is income that counts,’ and that a better test than wage rates of the circumstances of the workers was the larger total now paid in wages and salaries. But, as is stated in one of the bulletins of the Bank of New South Wales, ‘it is well known that a unit of money, for example, a pound note, will buy less goods and services in some years than in others owing to a general rise in prices. This means that comparisons of average of money incomes in two years may give misleading results.’ LEGISLATION & COSTS. “Legislation in New Zealand increasing wages, shortening working hours and increasing rates of - taxation has had the effect of increasing the cost of living, thereby reducing the value of the money unit. The higher costs of living, however, are not wholly attributable to this legislation; another cause has been normal increases is the prices of goods. In this connection, the Minister of Industries and Commerce stated in August, 1937, that ‘the present Government has been blamed for this rise in the cost of living, but half of that increase could not possibly have been controlled by the Government of this country, as it was due to outside influences.’ The increase (total) in the cost of living to which the Minister was referring at that time was one of 7i per cent, but the figures now stands at 12.6 per cent for February, 1938, as compared with the year 1935 (after rising to 13.3 per cent for December, 1937).

“It is a question how this greater increase is capable of being fairly allocated as between the normal rise in prices and the effect of Government measures. What may be regarded as some indication of the extent to which the rise in the -cost of living in New Zealand is above the normal increase in prices is afforded by the following table of comparisons with Australia: — Increase Per Cent Over 1935.

*Latest available. “It will be seen that the increase in the cost of living in New Zealand has been more than double that in Australia. The difference may fairly be regarded as attributable to the ‘Government’s legislative programme of social amelioration,’ for which it ‘makes no apology.’ “These higher costs of living in New Zealand have reduced the value of the money unit. Although a taxpayer may have a • larger nominal sum left him after he has paid his increased taxation, these money units have less purchasing power than they had previously. We have already shown that, for the great majority of industrial male workers at least, the increased costs of living have (on the basis of the official index figures) all but cancelled out the effective value of the increased money wages that are being paid to them. When allowance is made for the greater amounts they are paying in income tax and/or wages tax, it may be that they are worse off. from the point of view of purchasing power, than they were before. (This is certainly the case, of course, with (a) those workers working short time, and (b) generally those whose money incomes from whatever source have not increased at all, or have not increased to an extent sufficient to cover the increased cost of living). “So it becomes obvious how comparisons of money incomes for different years cannot be used to justify higher taxation without due allowance being made for the effect of higher prices in reducing the purchasing power of the money units which are left in the hands of the taxpayer. “One of the factors in the increased cost of living is the present excessively high level of taxation. Taxation, through being to a considerable extent translated into prices and services, is largely borne by the ultimate consumer. High rates of taxation mean a high price level, and a high cost of living. Existing wages would be given a ‘real’ increase (that is, greater purchasing power) if the taxes which are imposed on industry, trade and commerce were reduced."

Dec. Mar. June Sept. Dec. 1936 1937 1937 1937 1937 Qr. Qr. Qr. Qr. Qr.* Australia 3.6 3.8 4.3 5.3 6.1 Nov Feb. May Aug. Nov. New Zealand 5.4 7.2 9.8 10.7 13.1