8.—6.

66

[it. FINCH.

Supposing I want you to invest £10,000 for me in 4|-per-cent. Government bonds, could you tell me, roughly, what my annual income would be from that investment ? —At the present market price ? Yes. Would it be, roughly, about £460 a year ?—Yes. What could you get me on really first-class freehold investments for my £10,000 —what annual income ?—About 6 per cent. Could I take it that for all practical purposes my capital would be absolutely safe ?—Not so safe as in a Government security. But what margin would be practically the same ? What would you allow for insurance ? Would you allow \ per cent., or what ? —Do you mean on buildings or breiael acres ? Ido not care. lam coming to you and asking you to invest my money and not lose any of it ?— Then I should say stick to 4|-per-cent. If you get a tax-free investment, are you going to get that tax-free investment at such a price as will give you the same income as an investment that is subject tei income-tax ? —No. You will always get a lesser income for the additional margin of safety. You do not follow me for the moment. If you are buying a tax-free investment, will you not have to pay more for that tax-free investment than for an investment that is subject to incometax ?—Yes. Take that clause (k) in the majority report of the Taxation Committee : Is not the essential weakness of the argument set out there this : that you can get the same annual income, from the investment of the same principal sum in tax-free investments as you can get from investments subject to income-tax ? —Yes, I agree with you. Supposing I have £10,000 and I invest it in really first-class freehold security in which I can get 50 per cent, margin at 6 per cent. That gives me £600 a year. Supposing I invest in tax-free bonds, I only get £460 a year. So if I have to pay ss. in the pound income-tax on £600 it will leave me with a net income of £450. If I invest in tax-free bonds I also get about £450 ?—Yes. So it works out at the same. I think we put it in our minority report very clearly. Ido not know whether you agree with this paragraph (k) on page 9of the report: " The rate of interest prevailing in every country depends upon the amount of capital available therein for investment as compared with the strength of the demand for it. The average rate of interest required for capital in each, branch of trade or industry tends to be the same after allowing for an aelditional percentage: to cover the differences in the risk involved in each trade or industry " ? —Yes, I agree with that absolutely. So that if you have an advantage in one investment being free of income-tax a man investing in that will have to pay more for it ? —Yes. With regard to that case you gave, showing the injustice that will be worked between preference shareholders and ordinary shareholders. Your point there is not that the company would be making an abnormal profit, but that there would be an unfair distribution between the preference shareholders anel the, orelinary shareholders ?—Yes, that is the main point I was making. With regard to Mr. Hunt's last point: Income-tax, in your opinion, is not passed on by companies ?—I do not think it is. I notice this passage in the majority report dealing with freezing companies, and this was written two years ago : " In the case of freezing companies it is quite clear that the whole of the taxation must of necessity be passed on, and will ultimately reach the producer. Generally speaking, the freezing industry can only be carried on by companies bearing the maximum amount of taxation, and this is reflected to the full extent in the freezing charges." What has been the experience of the last two years with freezing companies ? —A small freezing company was formed in Oamaru to take over part of the New Zealand Refrigerating Company's works on the principle of mutual co-operation among the farmers—the producers—and as far as I can see the income-tax they will be called upon to pay for many years will be very small. So you are quite satisfied that, as regards the income-tax on companies, the assumption made in that pamphlet that you quoted, issued in 1921, that of necessity the whole of the income-tax is passed on to the consumer is quite incorrect ? —ln my opinion it is. And you have had a good deal of experience, I suppose, with companies ?—A considerable amount. Mr. Shirtcliffe.] I notice that in your statement you suggest that the tax on debentures should be made to coincide with ordinary taxation ? —Yes. How would you deal with the past issues of debentures ? —The issues in which the company has agreed to pay the tax ? Any past issues that have been put out over the last twenty years, if you like ?—I would bring those in too. Would not that be a breach of faith with the investors who took up those debentures ? How would you view that ? The Chairman.] The Legislature has never promised that it will not alter the tax. It is only where the Legislature has committed itself that you would commit a breach of faith. If you were to tax debentures issued, tax-free, that woulel be a breach of faith ; but an alteration of the rate would not be a breach of faith. The investor knows that he takes the risk of having the tax altered every year. Mr. Shirtcliffe.] Just the same as an hotelkeeper who pays an annual license takes the risk of not having that license renewed ? —Yes. You take that view, then, that the investor who invested in debentures ought to have realized when he made his investment that he was taking the risk of the tax being raised ? —Yes, to some extent. But as regards the debenture-tax, it only affects the large income-tax payer —the saving