R. FINCH.]

73

8.—5.

You say that the shareholder has not suffered. Therefore the company that he gets his dividend from must have had a bigger margin of profit during that period ?—Yes. There seems to have been something abnormal to enable them to get that additional margin ?— Yes. In normal times the shareholder would suffer to the amount of the tax, whatever it might be ?— No, not necessarily, because, to take the instance you quoted where the tax went up from £5,000 to £50,000, that is the tax paid. It is a graduated scale on the profits of the company. A company like that would pay the maximum rate always ? —Yes, the whole time. When the company earns a smaller profit it pays emt less than £50,000. But if it can go em paying its, shareholders j say, 10 per cent, through the whole; period and its tax rises from £5,000 to £50,000, is it not fair to assume, that it has taken £45,000 more from its customers ?—■ Yes, but not to pay the tax. The tax has been collected out of that. But its custeimcrs and the public did pay that much more than they had done previously ? —Yes, but not on account of the tax ; on account eif the abnormal trading-conditions. We are agreed that it has got the money from the public, but not as to whether the tax had anything to do with that circumstance or not ? —Yes. We are agreed that it came from the public. What we disagree about is as to how the company was able to get that amount ? —Whether the tax as a tax is passed on ? It has not mattered very much to the public how the company happened to get the money from the public ; it did get it ? —As far as the consumer was concerned he had to pay the price. In answer to a question by Mr. Weston I think you said that the different forms of investment— a tax-free bond and a mortgage were instanced—practically adjusted themselves and left each with eqUal facilities for getting money ?- -With a margin on account of safety. You insisted on that, though Mr. Weston, tried to persuade you not to do so. Do you ever look at the balance-sheets of local insurance companies, which are big investing companies ? —I have not looked at any recently. If those investments are equally desirable at the prices going, you would be surprised to find that the reserves of a big insurance company had almost entirely changed from mortgages to tax-free bonds in the course of a few years ?—I understanel that insurance companies are going in for debentures to a very large extent, and that was the reason for the increase in the case of debenture-taxation. But I have not been studying balance-sheets recently. Mr. Weston.] Both the A.M.P. anel the South British are investing more in mortgages than they were. Mr. Begg.] Take the local companies : I think that if yen examine the balance-sheets you will find that eight or nine years ago three-fourths of the reserves of these companies were invested in mortgages. To-day you will find: that eight-tenths of them are invested in tax-free bonds and debentures. If investments are equally good—that is, if it adjusts itself—why has that turnover been necessary ? —For one very important reason : the tax-free bonds and debentures are much more liquid. They always were, were they not ? That is not a new development ? —lt is as far as mortgages are concerned, I think. Mr. Clark : There was not the opportunity before to invest in Government bonds in New Zealand. Most of our loans then wore raised in London. Mr. Begg.] Do you not think that by your suggestion to have share dividends and tax-free debenture interest added to income for graduation purposes you are going to depreciate the value of your securities ? —ln the way of shares ? Yes, or elebentures. They will be no longer as desirable, and they will elenreciate in value ?— Yes, to some extent. And is not that the same thing as an alteration in the, incidence of taxation ? —No, because the divielends on preference shares would be depreciated in the same way. You would not affect the question of graduation. But if you altered the incidence of company-taxation, preference shares would depreciate in value ? —Yes. If you include share dividends and tax-free debenture interest in an individual's income in order to increase his graduated tax you would depreciate the value of the securities?— Both classes of shares, yes. Then, your objection is not to the depreciation of preference shares : if both classes of shares are depreciateel alike you have no objection ? —lf all classes of shareholders could be equally affected on that point alone there would be no objection on that point alone. Making this alteration you have suggested would equally depreciate certain forms of security ?— Yes. Mr. Hunt.] I would like to ask just one question to clear up a few points in connection with the questions asked you by Mr. Shirtcliffe. You say that companies do not pass on their tax ?—That is my opinion. If they do not pass it on, it follows that it must reduce the profits payable to ordinary shareherfders —either reduce the profits or reduce the reserves ?—lt means a reduction in the profits of the company. And that means a reduction in the profits divisible amongst the ordinary shareholders ?—Yes. And you said that one of your chief objections to altering the system was that it would increase the present tax on securities ? —Yes. And you quoted Mr. Clark's evidence in which he said that the proposed change in the incidence of company-taxation would mean that the rate of income-tax on ail taxable incomes of individuals between £300 and £2,000 would have to be at least doubled. You thought that that, was too big a

10— B. 5.