r. finch.]

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B.—fi.

But, in any case, I think they shoulel be; deductible within reasonable limits, bounded by, say, a certain percentage of the income. 6. To arrive at the graduated rate for income-tax, that all forms of income be included —share dividends, tax-free debenture interest, and so on. I know that the question of the inclusion of tax-free debenture interest has been considered by Parliament and has been turned down, but I still state that it should be done, because a taxpayer in receipt of taxable and non-taxable income is able to pay at the greater graduated rate on that portion of his income which is subject to taxation. Mr. Hunt.] You referred to Australia as now adopting the New Zealand tax. Do you know the rate of tax that they are charging the companies in Australia ? —I do not. I have not seen the Act itself. That quotation is all that I have seen. Mr. Hunt: You know, do you, Mr. Clark ? Mr. Clark: Speaking from memory, it is Is. in the pound on the total profits. Mr. Hunt: And are dividends taxable ? Mr. Clark: Not by the Federal authorities, except where the inclusion of the dividend would increase the rate of the shareholder's tax. Then the State, of course, taxes the dividend and the company too. Mr. Hunt: But it is a flat rate of Is. ? Mr. Clark: Yes. Mr. Hunt.] You would not suggest that that is the New Zealand system, would you, Mr. Finch ? (Witness) It states in that journal that the change-over is to the New Zealand system. That is the only authority I have for my statement. A flat rate of Is. in the pound is quite different from a graduated rate, is it not ? —That is so. You say in your statement that " companies were carrying on on the policy of letting the subsequent year's profit pay the tax that had actually become a liability during the previous year." It was surely only small companies that did that. I never read of a big company doing that ? —I have seen quite a number of examples of that, in both small and fairly large companies. They apparently ignored the question of income-tax. I have in mind a small company in Oamaru. They made a loss of about £15,000, I think. They had to pay out from £6,000 to £7,000 income-tax, and no provision had been made at all. Then you went on to refer to the large number of companies that have been floated during recent years as proof that companies are not unpopular as a form of investment. Of course, that report of the Taxation Committee of 1922 where it mentions the companies was only referring to iarge companies. Can. you point to any large company, with a large paid-up capital, which has been formed in the last year or two ?—I believe there were some large companies registered last year. But with a large paid-up capital ? It is quite a common thing for a company to be registered with a large nominal capital, but they call up only a comparatively small sum. It takes a company with a large capital to pay the maximum income-tax, does it not ? —That is so. Did you ever analyse what these companies were that were formed ? —No, I do not think I did. Would it be a fact that a large number of them were small private companies, formed probably to escape income-tax ?—I do not think, so. If a few wealthy men form a small company they escape income-tax, do they not ?—ln what way ? Say, a company with a total income of £3,000. It is only graduated as a £3,000 income, is it not ?— That is so. It might be formed with three shareholders having incomes of £1.0,000 each ? —Yes. Is not that escaping taxation ? —lt depends where they get their capital from. Those: arguments were advanced in a pamphlet that was issued, " Excessive Income-tax chargeel to Large Companies in New Zealand and. its Effects." That argument was advanced in that pamphlet. Mr. Weston.] Is that the Taxpayers' Association's pamphlet ? —No. It is one that was issued in 1921. ■Mr. Shirtcliffe.] By whom ? —A number of the stock and station companies. At the bottom of page 14 it says : " Now, the point is that the large public company may be, and often is, owned by a very large number of small shareholders, and the result is that shareholders of small and moderate means pay the maximum tax fixed for the extremely wealthy. On the other hand, these small private companies may be, anei often are, owned by wealthy men. By spreading their capital amongst these small companies they get off with a comparatively light tax. For example, take a man with an income of £10,000 before income-tax is deducted, If he has to show all this in his tax return he will pay Bs. 9d. in the pound, or £4,400. If he can spread 80 per cent, of his capital amongst a number of small companies that show an average profit of £2,000 a year each, these companies woujd only pay incometax at an average rate of £280 each —." That is a misstatement of fact, because you cannot have averages in a graduated tax. It goes on : " and, as our wealthy friend gets his dividends e;lear of income-tax, he has not to include them in his own income-tax return. The income he has to return is reduced to that from one-fifth of his capital, or, say, £2,000 a year, on which the graduated rate comes to £280. The, result is this wealthy man, instead of paying Bs. 9d. in the pound, or £4,400 in incometax, escapes with a payment of £1,400 —that is, the combined tax on his small company hohlings and his own direct payment. Through spreaeling his capital amongst small companies he makes a clear saving of £3,000 a year." That is an assumption, and there are so many fallacies in it that it is practically impossible of realization, to my mind. In the first place, the man would have to select nine separate companies with a capital of £3,300. He would have to buy 14,900 shares at par. He must have nine friends with each a capital of £1,700 to follow his lead and invest in the same companies to give him control. He must select nine separate managers for these companies. He must see that each company earns £2,000 exactly. If more, the rate is too high ; if less, then he loses part of his income. None of the nine companies must take any reserves, otherwise he loses income. And each company must distribute the whole of its profits. Now, I think that such a case would be: impossible.