D. G. CLARK]

39

8.—5.

various and contradictory. On the one hand it is alleged, that owing to the fact that the companies cannot pass on the taxes they will be driven out of the business ; on the: other hand it is alleged that they pass on the; tax, and this is a factor in the high cost of living. In reply to the first objection, 1 would say that I know of no instances in New Zealand in which a company has been driven out of the country by taxation. In reply to the second, I would state: that normally direct taxes, such as landtax on the unimproved value of land or economic rent, income - tax, eleath duties, are not passed on, while indirect taxes normally are passed on. Seligman, Professor of Economics at Columbia, University, states that a general income-tax on net income is not passed on, and with this 1 am inclined to agree. Income-tax is not a part of the cost of production, but a portion of the difference between prices and cost of production. I think it is likely that the:re is a certain amount of shifting caused by the, existence: of taxes from investments such as war-loan stock. I do not think that shifting of the income-tax in New Zealand obtains to any great extent, if it were true that industrial companies in New Zealand passed on the income-tax. If they paid, one would expSct to find a material increase in the rate of dividends paid since 1914 to compensate; for the reduced value of £1. A company paying a 10-per-cent. dividend in 1914 in order to pay an equivalent dividend during the latter years would require to increase its dividends to about 15 per cent. Ido not think that there is any such increases of dividends to be found in Ne:w Zealand —in fact, an examination of the Stock Exchange lists from 1914 to 1923 will show that the return on investments in companies' dividends have shown a decrease. An examination of the cost-of-living increase will show, I think, that they do not follow the variation in their rate of income-tax. lam informed by the: Government Statistician that the cost of living is now at the same: point as it was in 1920, although the rate of income-tax is lower than it was then. Gas companies are quoted as cases of those who pass on the tax. The examination of the returns of Auckland, Wellington, and Christchurch gas companies will show that this is not shown in the: dividends. I have obtained through the Ne:w Zealand Government officers in Melbourne and Sydney sonic information as to the price of gas in Melbourne: and Sydne:y, which will show that the price has increaseel in both States, althemgh the tax has not varied, during the period between 1914 and 1923. A comparison of the prices eif gas in Melbourne and New Zealand will show that the price in Melbourne reached as high a figure as in New Zealand. The rate of interest in New Zealand has tended to be; slightly lower than in Australia, so far as I can ascertain. The; rate is now tending to increase: in both countries, while the rate, of income-tax is decreasing. There: is one point that has been raised in connection with our present method of assessing companies that 1 must admit creates a elifficulty that is, the fact that a wealthy man may, by subdividing his investments, escape a certain amount e>f taxation ; and to meet that difficulty 1 would suggest that a similar provision be enacted to that which is at present applied to joint owners of land, and that the income of such a persem from •all sources be aggregated so as to secure the highest rate: to which such a person would be liable to be charged. There would be considerable administrative difficulties if the change advocateiel were adopted. The rate of tax chargeel on individual taxpayers would require to be considerably increased. It would, require to be at least as high if not higher than the older and more highly developed countrie:s in which the system ailvocated pertains. There would be: considerable loss of revenue by reason of the; fact that a considerable number of the largest companies operating in New Zealand have large numbers of non-resident shareholders. There would alsei be considerable evasions by the: subdivisions of shareholding amongst members of families, and by the; incorporation of private businesses. In conclusion, I we>uld advocate a land-tax levied on a flat rate on the, unimproved value; of all land in excess of £500, or, if thought advisable, in excess of £1,000, on the: same basis as the levy of local rates, and without reference to mortgage: indebtedness, allowance for which can be made: by deduction of interest in the assessment of income. 1 advocate a general income-tax on income from all sources, including income from land and debentures at the: same: progressive rates as, or similar progressive rates to, those in use at present. I think that the exemption of the income from land is a retrograde step, as I think that it is advisable: to make no exceptions whatever in the assessment of income-tax. The more general the tax can be made the less probability, I think, there is of there being any shifting of the tax. The tax on debentures should, I think-- from the same' reason- be: uniform with the tax on income from other sources. If such a system were adopted it woulel enable a considerable deduction to be made in the present general rate. There is, of course, a difficulty in connection with the exemption of the income from war-loan stock. It has been suggested that this should bo aggregated with a taxpayer's other income in order to fix the rate, but this suggestion has been rejected by Parliament. In the United States, where the difficulty in this connection is much greater than it is here, attempts have been made to abolish the exemption of tax-free securities, but have been rejected by Congress. In any case it would take about, fifteen years to bring about the necessary alterations in the law there. It might be worth while to consider the redemption of these securities in New Zealand by the issue of exempted securities at a slightly higher rate of interest. I believe that the Government has power to redeem before maturity. Mr. Weston.] Your idea is this : that although income elerived from companies should not be assessed in the hands of the individual, yet for the purpose of fixing the. rate of tax payable upon his income, including dividends from companies, you would take his total income ? —Yes, and give- him credit for the' tax paid by the company--that is, where it would have: the. effect of increasing the amount of tax to be collected. It would be: a prevention of evasion by a persem cutting himself into several, persons, as it were. Mr. Hunt.] On page 32 you say : " Taxation should, be: in accordance with faculty, and should be- proportional to income as a measure of faculty." With that 1 agree ; you mean in proportion to the, man's total income ? —Yes. Then, on the same page you say : "My grounds of defence are these : that the action of indirect taxes is regressive—that is, they fall more heavily on the smaller incomes—and to strike; a