A. FELS.]

8.—5.

85

There are not many external factors that govern exchange ?—Yes ; the law of supply and demand. Imports have a great deal to do with the exchange rate, The suppliers of exchange are chiefly banks ?—Yes ; but there are other factors —for instance, the prohibition of gold shipments. That is the principle reason for the big divergence we have had in the rates. Mr. Weston.] Take the short-call money in London : have you followed the, rates last year of short-call money in London ? In England, in spite of the heavy taxation, the: short-call money was never so cheap as last year ?—I believe that is right, except in pre-war days, when it was about the same. Mr. Shirtcliffe.] I woulel like to follow up the suggestion made by Mr. Hunt as to the' question of passing em the tax, which is a very important one. You arc in competition with other houses in Dunedin which are probably in as large a way as yourselves ? —Yes. In Christchurch the same: thing applies, where you are in competition with firms like Strange: and Co. and Ballantyne's, anel in Wellington with such firms as Kirkcaldie anel Stains and others ?—Yes, any number of them, in fact. The same thing applies to all the centres. Would it be possible as a matter of practical commercial dealing for you to combine with those other firms for the purpose: of passing on the tax to your buyers ?-—No, it could not be done, There are toe) many in the field for that. As a matter of actual commercial practice, you say it is impossible in either a large or a small trade, except perhaps in the case of a monopoly, to pass on the tax ? —I do say that. Walter Cow examined. 'The Chairman.] How do you elescribc yourself now, Mr. Cow ? Do you call yourself a merchant ?—-A retired merchant. . Residing in Dunedin ? —Yes. During your career you have had to deal with all kinds of businesses —companies and all kinds of commercial concerns ?—Yes, and even with the: breaking-in of a farm. I understand that you have some views on the subject of taxation, and we shall be: glad if you will impart them to us, taking first the question of land-tax ? —Of course, I had no intention of appearing before the Commission and would not have done so but for your kind invitation to come, which I got yesterday afternoon. I have' had no opportunity to prepare anything in the nature; of a, written statement, but if you will permit me to express my views shortly as to income-tax and land-tax I will be pleased to dei so, anel then 1 might answer some questions. If you will do that we; will be obliged, taking the subjects in the order most convenient to yourself ? —As far as my first statement is concerned I will be very short, and I will keep within the bounds of the Commission's order of reference, which only deals with the questions of income-tax and land-tax. I need not worry you with the question of the principles of taxation, which perhaps you know more of than I do, but we all admit that the basis of taxation is the basis of equity. That may be taken for grantee!. Then, it is also taken for granted, and will become more and more the, doctrine of economists, that the basis of a man's ability to pay is his income. In America Professor Seligman says definitely that the opinion of economists in that country is steadily coming round to the view that the, true; basis of a man's ability to pay is his income. In America they have not been dependent upon income-tax; they have: been depenelent upon property — and other taxes. It being admitted that the fairest measure of a man's ability to pay is a man's income:, we may say that income-tax is essentially a fair tax, provided you can adjust it in such a manner as to reach every one, and to reach every one eeputably. I think that may be taken for granted. There is another principle which comes into play, and that is the principle of equality of sacrifice. Some of these phrases you have heard before ; they are: old Adam Smith phrases. Eejuality of sacrifice: means something more than a mere flat rate of payment by every one upon his income. For this reason, no doubt, it is that a man is relieved from payment of tax until his income reaches a e:ertain amount. For that reason also there is an exemption where a man is involved in many responsibilities, such as children. That seems to be just and fair, and for the same reason —equality of sacrifice—it being obvious that a man with a superfluity is in a better position to pay taxation than a man with only enough to serve the necessary purposes of life, it becomes obvious that it is quite reasonable that there shoulel be graduation in taxation, and that the man with larger means should pay in a larger proportion than the man with smaller means —I mean, in a larger proportion, not on the flat rate, but because he is able, to spare more. As against that view, I have always held —and lam very much confirmed in my opinion by the most recent work of Sir Josiah Stamp—that there, is a danger of carrying graduated taxation too far. That writer in his latest book on " Taxable Capacity," which was only publisheel eighteen months ago, makes it quite clear that there is the greatest danger of killing the goose that, lays the golden eggs if you carry the scheme of graduation too far. lam afraid that at one time we have done that in New Zealand. Then, that simply means that income-tax is a fair tax, provided that the e;onditions are reasonable, and that they ought therefore to be the main bases on which our people: are to be taxed. It is the best measure of the capacity to pay. But there are other subjects which are fair subjects of taxation. I am not going to enumerate them, because that would lead me to wander away from the reference erf the Commission. Privilege is one of them. If by reason eif circumstances inelividuals are in possession of exceptional privileges, that is a fair subject of taxation. That brings us to taxation on lanel. Land is a fair subject of taxation because it carries with it a privilege which is not common to other- sources of income. I elo not moan to say that it carries with it what we speak of as unearned increment, that sooner or later the possessor of the land will become richer by reason of what is known as land increment. lam not prepared to say that