EXCESS PROFITS

Wairarapa Times-Age, 9 October 1940, Page 4

EXCESS PROFITS

BILL BEFORE THE HOUSE FINANCE MINISTER’S EXPOSITION MR HAMILTON ON APPEAL PROCEDURE. NEW BURDEN FOR FARMERS AND MANUFACTURERS. (By Telegraph—Press Association.) WELLINGTON, This Day. The second reading debate on the Excess Profits Tax Bill was opened in the House of Representatives last night by the Minister of Finance, Mr Nash, who was followed by the Leader of the Opposition, Mr Hamilton. Both received extensions of speaking time, but less than the stipulated halfhour was sufficient for subsequent speakers in the debate to express their views. Urgency will be taken for the ( Bill when consideration of it is resumed today, following on the discussion on Ministerial replies to members’ questions. Mr Nash said the Bill was to ensure that during the war no one should make any more profit that he might reasonably have made under peace time conditions. A detailed explanation of the clauses was given by the Minister, who said the excess profit was in effect the amount greater than the normal profit which a man received after he had paid all his ’taxes. The importance of appointing a committee to hear appeals in which the taxpayers would have confidence was emphasised by Mr Hamilton. He also expressed the opinion that manufacturers and farmers would bear the major burden of the tax. NO PROFITS OUT OF WAR. “It has been generally laid down, both in this country and abroad,” Mr Nash observed, “that there should be no profits out of the war.” It was not expected, he continued, that people should not make profits during the war, the Minister said, but they should not make profit actually out of the war. As it was impossible under the existing economy to define the exact difference between war profits and civilian profits, all profits must, therefore, be considered for purposes of the tax. That was the only way to secure equity between trader and trader and between manufacturer and manufacturer. For instance, a manufacturer of boots working solely on military orders left the civilian market to other manufacturers, who thus received an enhanced trade as a result of the war, and it was only fair that they, too, should be subject to tax. The suggestion had been made that the Bill would discourage increased production, which the Government was asking for, but that would not be so, as allowance was made for cases where extra capital or extra effort was employed. It would,, however, prevent anyone from reaping an abnormal profit in return for the use of only the pre-war amount of capital.

STANDARD INCOME. ‘■The first principle of the Bill is to determine the standard income,” the Minister said, “and when we have found that we determine the excess profit. The standard income procedure should meet most cases, but no matter how far-seeing we may be, it is imet. possible to be completely correct in determining excess profit. Consequently, we have made provision for a committee of three to take into account the circumstances of any taxpayer who appeals against assessment. We think is. 99 per cent of the cases will be determined automatically by the Commissioner of Taxes, but where there are appeals, the committee will be able to take anything relevant into account to find a just solution.” Detailing the provisions of the individual clauses of the Bill, the Minister said the tax would be levied first on this year’s income and on next year’s assessment, and would be thus payable first in 1942. The excess profit, in essence, was the amount greater than the normal profit which a man received after he had paid all his taxes. Sixty per cent of that would go to the State, and the man would retain 40 per cent. Instancing the case of a man who had £3OO excess profit, the Minister said that, after payment of excess profit tax and all other taxes on that amount he would be left with between £7O and £BO as his share of that amount. That was, however, £7O or £BO more than he would have received if there had been no war. Mr Doidge (Opposition, Tauranga): =• “What makes you think he would not k have made that profit if there had B been no war?” ® Mr Nash: “No one should be better - off because of the war.” e HEARING OF APPEALS. r Mr Holland (Opposition, Christi- church North): “Is it likely that the s Commissioner of Taxes will oe a memh ber of the appeal committee?” c The Minister: “I do not think so, because we want to make that commit- . tee as independent as possible. We have not yet given consideration to : the actual personnel.” , When the Minister was explaining .. the exemptions, he said the exemptions . . of royalties on timber and minerals j . was due to the wasting nature of the j - assets. j Mi- Doidge: “If you are exempting j i salaries and wages, why not exempt j professions?” • ( Mr Nash “There is a difference be- < . tween the two, but we do give a mem- < ber of a profession the right to a cer- . . tain salary, while there is allowance * . for personal exertion and for 6 per < s cent, of any increase.” < : The Minister added that professional j incomes were exempt in England and t Canada, but not in South Africa. The proposed Australian Act applied only { to the excess profits of companies. f Mr Doidge: “Don’t you think you j should have exempted farmers?” c “They are getting a very fair deal under this Bill,” Mr Nash said. “They t know that. No farmer will pay the c tax on any net income below £5OO, so c that no complaint can be made that we a are taxing the poor, small working J. farmer. No person getting less than <■ £5OO will be affected by the Bill.” f

BASIS FOR DISCUSSION. The opinion that manufacturers and farmers would carry most of the burden ,of the proposed tax on excess profits was expressed by the Leader of the Opposition, Mr Hamilton, who followed the Minister of Finance. Mr Hamilton said the Bill was an attempt to meet a very difficult and intricate situation, and provided a basis for

reasonable discussion. The Minister, said Mr Hamilton, had made a good case for the Bill. His statement that the measure did not discourage production, however, was open to question. General taxation was about as high in New Zealand as any- , where, and with the compulsory loan for war purposes and an excess profits ] tax people with capital would be re- j luctant to invest their money in new enterprises, preferring to leave it lying j in the bank. The individual who op- f erated his capital should be encourag- < ed. t

“I should not be surprised if this is another tax to catch the energetic and the industrious,” said Mr Hamilton. “There are two classes of useful people who wiil bear the major burden of this tax—the manufacturers and the farmers, because both have been asked to spur up and increase production.” Mr Osborne (Government, Onehunga): “The workers in the factories will make a contribution.” I

Mr Hamilton: ‘They have been allowed something extra for their labour.”

DIFFICULTY OF DEFINITION. “Profits in themselves are not wrong," Mr Hamilton continued. “This Bill in a sense actually defines profits, but not excess profits. There is an attempt to stigmatise the term profit and make it an objectionable word. To some people profit is salary, and it might be less than that received by a person whose income is classified as salary. Extra profits as a result of the war can reasonably be considered for a special form of taxation. The public does not like the idea of profits made because of the war, but the problem is to find a just basis for the taxation. The difficulty is to get a correct definition of what is an excess profit so as not to catch any taxpayer unfairly.” The British legislation dealing with excess profits, said Mr Hamilton, had gone into much greater detail than that introduced by the Minister. The taxpayer liked to know the limit of his liability, and the nature of his assessment. New Zealand’s position was very different from that in Great Britain, which was a large industrial country. With so many British industries engaged in war work, very likely there would be cases of excessive profits resulting from war work, but he did not think a situation of that kind was like in New Zealand. The Government had power to control profiteering, and if the Bill means anything. it was an admission that the Profiteering Act and price fixation had failed.

Mr Hamilton said the Bill would penalise lhe heavily mortgaged farmer as compared with the man free of debt, for the individual with all the free assets would get a much better standard income. That was a strange anomaly for a Labour Government. The wealthy person was to be given a better deal than the poor one. ‘‘The personnel of the committee to hear appeals is all important." said Mr Hamilton. “If the Minister appoints a committee in which the taxpayers have

confidence, it may meet the position fairly well, but should theorists be appointed, that confidence will be lacking. The personnel of the committee will be able to give a lot of confidence in the operation of the Bill or create fear in the minds of the taxpayers.”