8.—5.

90

[W. GOW.

who, without much calculation, plunge into business, and they say, " Well, there must be a profit in this," and they go ahead to the end of the year without knowing or having any idea of what the result of the year's trading will be. But this is not a firm with any short experience ? —Then, it must be, a firm that had been making large profits and not passing their tax on ; it may be that other people were content with lower profits than they were making. How do you suggest that the passing-on is effected : you could not add a percentage to the cost of the goods to cover income-tax ?—You do, as a matter of fact. You increase your " overhead " as it is called —your rates and taxes are included in your overhead. Rates and taxes are a fixed quantity, whereas your income-tax is an unknown quantity until the end of the year ? —Theirs must be a very fortunate business then. You do not think that the force of competition to-day beats prices down to the level at which they would be were there no income-tax ? —No. In some cases ; take gas companies— But they are exceptions ? —Yes, they arc exceptions, and they are easy of illustration. The illustration is easy there. They deliberately put into their charge so-much for income-tax. Coal companies do the same thing, I believe. Mr. Weston.] No ? —Well, there are coal companies and coal companies. Any one will realize the truth of what I say, that out of the earnings of a business you must find sufficient to pay that tax, and you must find sufficient to give a satisfying dividend to your shareholders. I can tell you frankly of one company which, if there had been no war, would have been in a better position than they occupy to-day. Instead of paying 6 per cent, we would have piaid 8 per cent., and we would have had at least another £10,000 in reserve ? —Well, I am in one company that has been in existence for fourteen years, and it has never paid a dividenei yet to its orelinary shareholders. Mr. Shirtcliffe.] What has become of the capital ? —lt will pay eventually, and as far as the shareholders are concerned, nine times out of ten the money is withdrawn. The new man will hang on for a year or two, and will make his loss and then clear out. You can buy shares in this company for 2s. 6d. These people are speculators, but as a matter of fact money disappears from any investment which fails to produce a return. Mr. Weston.] Cannot you piut it this way : income-tax is a tax either on personal exertion or on the use of capital ? —On the income from capital. The income that comes from the use of capital ? —No ; the income from capital. Well, capital always wants to get as much as it can, the biggest return, and the return you can get from capital is dependent upon the demand for capital in the country and the, supply available ? — That is so as far as the investment rate is concerned. The investment rate also affects every business. Therefore the extent to which a tax upon the use of capital cannot, pass on depends upon the law of supply and demand ; that is to say, the amount of capital in the country and the demand for it ? —Well, no, the rate of income which will be gained by the, owners of capiital depends upon the supply and demand, but the amount which a business will call upon itself to earn only elepends upon it to the extent that it will have a little less to earn in order to satisfy the shareholders. But assume that the price of investment capital came down to 4 per cent., you can easily understand that the shareholders in a business would think themselves doing all right if they were getting dividends of 6 per cent. But if you were taxing these companies which were earning 6 per cent, another 2 per cent, they would immediately say, " We must still give our shareholders 6 per cent.," and they would get it.Supposing you were taxing all capital alike, if you were taxing capital used for investments you must pay the same tax upon that ?—We are discussing taxing income from capital. We are going to tax income, from capital : you tax the man's investment in mortgages the same as you tax his money in a business ? —No. You mean that income compared with income, the rate is the same for moneys realized from investments as it is for moneys realized from businesses ? If you say that you can pass on the tax, then you would get a rise in your basic rate ; that is to say, the man who was investing in mortgages at 4 per cent, would say, " I want more than that, because 1 have to pay a higher rate of income-tax than in the past ? —So he does. Taking the basic rate —that is, investment in first-class mortgages —you will find that the, increase has been from 1 to ljr per cent. : is that so or not ? —I am not in a position to say what the increase has been, but there are two elements which account for the increase : the one is the sufficiency of the supply of money, and the other is- -assuming that the supply approximates to the demand — the necessity to recompense the, man. There, is the supply and demand and what the lender is going to get out of it. If there be a plethora of money the rate will come deiwn, but the lender always takes into account that he must get \ per cent, for income-tax. Whether he succeeds or not depends upon the relation between the supply and the demand for money. If you take the rates for money over a Jong term, you find that the increase in the rates for Government securities was about 1| pier cent. Borrowers would have to pay lj pjer cent, more than in 1.914. That is a little under 30 per cent., which is the rise in the rate of interest. As against that the cost of living rose over 62 per cent. So that the rise in the rate of interest is not in proportion to the rise in the cost of living. So that even if you are getting 6|- per cent, to-day where you were getting 5 per cent, in 1914, your 6£ per cent, to-day is not worth what your 5 per cent, was worth in 1914. That goes to show that tax is not passed on ? —lt has no connection with it whatever. Mr. Hunt: Can I try to make the point clear ? Mr. Weston was showing that the same deeluctions applied to investments as to a business, but that is not so. Take the case of a man with a total capital of £10,000. He invests that £10,000 at 6 per cent, in mortgages anel gets £600 a year. From that he has got to pay ss. 6d. in the pound, or £15 in tax. If you go and ask him to put that money into a business he will say that he wants more than the investment rate. As your business is paying ss. lOd. he will want 7 per cent, plus ss, lQd, in the pound ? —He wants to be .assured of something better than the investment rate,