B. —5

Railways. 20. In the last pre-war year that is, the year ending the 31st March, 1914- the expenditure on railways was £3,004,181, the gross revenue £4,191,617, and the net revenue left £1,187,436. For the year ending 31st March, 1922, the expenditure was £6,473,233, the gross revenue £6,683,986, the net revenue being £210,753. This £210,753 is the only amount available to meet the interest upon the capital of over £41,000,000 invested in railways. The deficiency has to be made up by the taxpayer out of the Consolidated Fund. 1 Increase in General Administration Expenses. 21. The increase herein, as already shown, is from £8,494,530 in 191 4to £17,344,235 in 1922, an increase of approximately 104 per cent. The Committee recognizes that the Government has already done a great deal in the way of effecting economies in public expenditure. Indeed, they have done more in this direction than many people, who do not realize the true facts, think necessary. The Committee desires to emphasize that when the country's position is considered in tin; light of its productive income, and the war burdens that it has to carry, more drastic economy than that already announced must be effected. It must be generally recognized that this is not a time for increasing, but rather for decreasing, public services. Taxation at the present level will cripple industry and production, and delay the country's recovery. It cannot be reduced unless strict economy in all public matters, and a reduction of public services not absolutely essential, is rigidly enforced. 22. The Committee ventures to suggest that a sound basis to adopt in connection with the annual Budget would be the " taxable capacity of the country" estimated from year to year according to the general conditions prevailing, thus reversing what appears to be the present method, of first determining tin- expenditure and then endeavouring to raise the necessary taxation, irrespective of the ability or otherwise of the country to respond. Income-tax. 23. Of the various taxes imposed in this Dominion, income-tax has since pre-war days hern increased to a. much greater extent than any other tax. The following table is a. comparison between the years ending 31st' March, L 914, and 31st March, 1922 :

For the year ended 31st March, 1921. the income-tax collected amounted to £8,248,945, which was an increase oj 1,388 per cent, over 1914. The reduction in 1922 was caused by reduced income, notwithstanding an increase in the rate of tax. 24. The huge increase which has taken place in the taxation of incomes in this country since the commencement of the war made the income-tax one of the most important subjects of this inquiry. 25. In considering the question of income-tax, the Committee had to keep in mind the vast change that has taken place in the tax since the commencement of the war. Previously income-tax was a comparatively small portion of one's expenditure. The changes in the tax brought about by the war have been mainly in two directions — (a) the enormous increase that has taken place in this country and in all other parts of the British dominions, as well as in most countries of the world ; and (6) the introduction of the graduated system, which increases the rate of tax with the income, 26. The graduated or progressive system of income-tax is now almost universal, but only since the war has it been extensively put into force. 27. The world's experience of very heavy and steeply graduated income-tax, which most countries are now called upon to bear, is so short as to make the drawing-up of definite conclusions very difficult. The writers of only a few years ago had no experience of conditions such as we are now passing through, and the conclusions they may have come to in connection with the. very much smaller proportionate income-tax of their day cannot be taken to definitely apply to income-tax such as that with which we arc now dealing. 28. Notwithstanding the change in the application of income-tax, Adam Smith's four maxims may still be accepted as a sound foundation. These are :— (1.) " The subjects of every State ought to contribute towards the support of the Government as nearly as possible in proportion to their respective abilities —that is, in proportion to the revenue which they respectively enjoy under the protection of the State, (2.) " The tax which each individual is bound to pay ought to be certain and not arbitrary. The time of payment, the manner of payment, the quantity to be paid, ought all to be clear and plain to the contributor, and to every other person. (3.) '* Every tax ought to be so levied at the time or in the manner in which it is most likely to be convenient for the contributor to pay it. (4.) " Every tax ought to be so contrived as both to take out and keep out of the pockets of the people as little as possible over and above what it brings into the Public Treasury of the State." ♦

4

31st Marc Ii. 1914. 31st Maxell, 1022. . , Percentage AlllDlllll. , „, , P to total. Increase, tnorease per Cent. Tax. Percentage to Total. Amount. Income Land Customs and excise Death duties Other taxes £ 554,271 767,451 .. 3,553,785 613,751 428,776 9-37 12-97 60-05 10-37 7-2-1 5,998,885 36-63 1,635,808 9-99 5,550,557 33-89 1,514,844 9-25 1,675,560 10-24 £ 5,444,614 868,357 1,996,772 901,093 1,246,784 982 113 .56 147 290 982 113 .56 147 290