§ * SIR G. BADEN-POWELL (Liverpool, Kirkdale)
Page 3, line 27, at end, add—Provided that when the Commissioners are satisfied that in a British possession duty is payable in respect of any income accruing 101 in such possession, they shall allow a sum equal to the amount actually paid as such duty to be deducted from the amount payable as income tax in respect of that income if received in the United Kingdom.The Amendment standing in my name raises a question of much complexity, but one above the level of mere Treasury considerations, affecting, as it does, our political and commercial relations with our Colonies. This double income tax is a question which has arisen only in recent years, and is mainly owing to the financial crisis which had arisen in Australia, which has led five out of six of those Colonies to impose an income tax for the first time. As we all know, the income tax is also levied in India. Now, with regard to the political effect, I have had during the past few years in which I have taken a great interest in this subject a great number of letters, and although I do not wish to go into details I wish to show that they are all of the same tenor; and if I mention one or two of them perhaps we shall be able to understand what is the opinion of our leading men. One of the highest authorities on trade affairs, resident in London, tells me, in a letter, that this double income tax is a gross blunder, and he describes it as "simply plunder" by the Government. Others write of it as "a gross injustice," and an Australian judge says that now, if he wishes to live in the mother country on the pension he has earned in Australia, he can only do so provided that he pays 1s. 4d. in the £ of his income. Last May the financiers in Victoria, some of the most important men there, who handle most of the capital of that country, formed a deputation to the Premier, and pointed out to him that this double income tax was having a very evil effect upon the supply of capital in Victoria. In many other of our Colonies similar events have taken place. I know myself of one case, in which some capital that was earning something like £12,000 per annum in New South Wales has been removed from that Colony because the people who own this capital do not wish to continue to pay this double income tax, and they have taken that capital to other British Colonies where no income 102 tax is levied. This double income tax is having even a greater effect on the capital employed, because a great many investors are finding out that there is an overlapping of this right of taxation between our different Colonies. We all of us know very well that the Imperial Parliament delegated to the Parliaments of some of the Colonies the right of taxing themselves, but this system of double taxation which has grown up seems to many of our friends in the Colonies to be an unjust exercising of the delegated right of taxation, and they allege that, by levying an income tax in this country on revenue, and income made in these Colonies, we are exceeding our rights, and taxing a local source of revenue, thereby making that local source of revenue less profitable and less prolific for the taxation instituted by the local Government. I would point out, further, with regard to the political aspect of the question, that the levying of income tax in one Colony, provided it is not done on a right basis, as a matter of fact does interfere with the right of raising revenue by means of income tax in the other Colonies, and thus we come upon the very large Imperial question of the financial relations of our various Colonies and it is all due to the fact that these Colonies, or some of them, have recently followed in the footsteps of the mother country and levied an income tax. My Amendment suggests a solution of the difficulty. I do not know that I need say much about the commercial aspect of this question, but I would remind the Committee that the progress of the Empire should not be judged by the imports and exports only. The main item in the growth of our Empire—certainly the main item in the value of our Empire to the mother country—has regard to the capital which earns income in our Colonies. That capital is sensitive to a very high degree, and beyond that it is perfectly free as to where it should be invested. The magnitude of this aspect of the question will, perhaps, La seen from figures which I will venture to present to the Committee. We have a 103 very adequate return of income received in this country under Schedule C, and I have the result in round numbers. We have the figures for 1873, 1883, and 1893, though we may omit 1883 from our calculations. Taking the period of the last 20 years, it will be found that while income received in this country from investments in the United Kingdom has fallen by a fourth, and income derived from investments in foreign countries has fallen a half, income from investments in India of British capital has decidedly increased, and income from investments of British capital in the Colonies has increased during the past 20 years not less than fourfold. The Committee will see at once the importance of watching most carefully the investment of capital in our Colonies, and what I desire to insist upon is that if the present arrangement is to continue to be a permanent feature in the financial relations of the Empire, it is likely to greatly check investment, at all events, free investment of capital in our Colonies, and for this reason alone, if for no other, it should be dealt with by the Imperial Parliament. I am well aware that in some Colonies there is a tendency to let the double income tax stand, because they wish to do all they can to create a taxable charge on absentee landowners; but that, after all, is a very minor matter. They understand as well as we do that progress depends on the free use of capital obtained from outside, and they know that capital from the mother country flows very freely. But in these Colonies to which I refer particularly—New Zealand and New South Wales—and I can speak from personal experience in these investments, the system of double income tax has a very serious effect on the amount of capital flowing from the mother country to these Colonies. I do not know whether more need be said regarding this evil. I know that when the death duties were considered in 1894 the same grievance was brought up and dealt with. The grievance consisted in the fact that the same tax was levied on the same property in the name of the same Queen. The right honourable Gentleman, who was then Chancellor of the Exchequer, 104 said that this was a policy to be avoided, and I think that he will agree, and that we shall all agree, that an overlapping ought not to be allowed to be established or set up between the income tax levied in the British Colonies and that levied at home. It is quite another matter what foreign States may do, but there should be no overlapping of income tax levied in the British Colonies, and in the name of our gracious Queen, for the maintenance of the Queen's peace and the maintenance of the integrity of our Empire—those being the objects of the tax. Another point I may mention is that of the income tax levied in England, a great proportion is levied on income which is neither raised nor spent in the United Kingdom. The precedent of the death duties, to which I have alluded, renders it necessary to make a short quotation from what happened in regard to the Finance Act of 1894. The clause finally inserted in that Act was as follows—When the Commissioners are satisfied that in a British possession to which this section applies duty is payable by reason of a death in respect of any property situate in such possession, and passing on such death, they shall allow a sum equal to the amount of that duty to be deducted from the estate duty payable in respect of the property on the same death. Nothing under this Act shall he held to create a charge for estate duty mi any property situate in a British possession.It will be seen how these clauses apply to the present question, and I would like to read what was said by the right honourable Gentleman who was then Chancellor of the Exchequer, whom I am glad to see in his place. On June 21st he said—The view of Her Majesty's Government is that whatever they did should be done for the Colonies, and not for all places outside the United Kingdom. In principle the Government was prepared to accept the principle ret forth in the Amendment of Sir Richard Webster. The object of that Amendment is to prevent the imposition of double duties— that was to say, when the Colonies charged the duties, that amount should be deducted from the charge made in this country.On July 2nd the right honourable Gentleman said in the same Resolution—They did give the Colonies this advantage: that they made it impossible in their 105 case that double duty should be charged, ant to that extent they were placed in a preferential position as compared with foreign countries.These principles have thus been advocated by—if I may be allowed to say so—one of our best and most trusted financial authorities, and they have been ratified by Parliament and the country by their embodiment in the Act of 1894. If these principles were applied to the evil now under consideration, it would certainly be remedied. I would now wish to point out briefly that the chief difficulty connected with the present system is that income tax is levied on different principles in different Colonies. New Zealand and Tasmania follow the lead of the mother country, and impose income tax on incomes made or received in the respective Colonies; that is to say, they tax both by the domicile of the person receiving the income, and also by the locality of the property yielding that income. In New South Wales, Victoria, and South Australia, the tax is levied only on incomes made in each particular Colony, and in the two latter dividends on loans to the Government are exempt. In Queensland the tax is levied only on the dividends paid by companies working in the Colony. Many curious results are caused, though I need not follow them up. I will only point out that a resident in Victoria, is not taxed on income made in England, but a resident in England is taxed on income made in Victoria. I may also point out that there is a tax on income received in India on Indian securities, and a tax on all sterling shares in all industrial companies. Let me give an instance. If a firm in Bombay pays income tax on the profits of their business in India, and a partner in that firm happens to reside either temporarily or permanently in England, he has to pay another tax on that same income. I hope I have made myself sufficiently clear. I do not wish to detain the Committee, but I may say that no one feels more than I do the difficulty of separating one form of taxation from another. In England it in extremely difficult to separate either the incidence or the effect of the income tax. 106 But in handling taxation from any particular point of view it is necessary to take taxes as they exist in the category, and handle them accordingly. One must simply take income tax as income tax, whether in this country, the Colonies, or India. Before doing so I may mention I have endeavoured to estimate what the Chancellor of the Exchequer would lose if this Amendment were accepted. I have endeavoured to make some estimate of the effect in England of this proposal, though I found it impossible with the returns available to make that estimate exact. I wish to show that under Schedule C the total amount received from income tax on incomes from Colonies where it is levied does not exceed £180,000, but I am aware that there are large items under Schedule D which ought to come from the same Colonies, and I do not wish to put £180,000 as the limit. Now I think I have said enough to indicate the magnitude and character of the evil we must remedy if we can. The remedy happily can be found. Now that we have delegated to the various Colonies full liberty to tax themselves, a permanent remedy—if I may so call it—would be to come, by conference or correspondence, to some general consent or agreement among these Colonies, in which, of course, mutuality and reciprocity must be the main elements. But in coming to that conclusion it is perfectly apparent to me, at all events, that one of two principles must be adopted in levying income tax. You might confine the raising of this revenue to the domicile of the receiver of the income, or it might be confined to the locality in which the property yielding the income is situated. In other words, income tax might be confined to incomes either made or received in that particular portion of the Empire. That would be a final settlement of this question; but a preliminary settlement, and one which I venture to suggest would be quite sufficient as fur as the interests of this country are concerned, would be to follow the precedent set up by the right honourable Gentleman opposite with regard to the death duties, or by adopting some proviso such as that I now suggest, coupled with reciprocal action. I feel myself there is a large outside public both in the Colonies and in this country 107 which feels that something should be done to avoid a great injustice to investors, a great injury to colonial development, and a great interference with the fiscal rights of each portion of the Empire. I hope I have not spoken at too great length in describing a great and severe evil. I have suggested two classes of remedy, and I feel certain the Chancellor of the Exchequer will pardon me for having interrupted the consideration of his admirable Budget by describing a great evil, and suggesting an appropriate remedy. I beg to move, Sir.
§ Question put.
§ * THE CHANCELLOR OF THE EXCHEQUER
My honourable Friend has made his proposal in a somewhat inconvenient manner. As the Amendment is worded, and now stands, he proposes to make a permanent alteration in the law with regard to income tax in a clause essentially temporary, and confined to the present year. Further, he proposes that the Commissioners shall satisfy themselves on the point to which he alludes. The Commissioners, under this clause, would be the local commissioners of income tax, and according to his proposal every local board of income tax commissioners throughout the country might interpret the proviso according to their own sweet will and in different ways. Further, my honourable Friend makes no proposal whatever for reciprocity in this matter between the Colonies and the mother country. He would give an advantage to the Colonies for which the Colonies would give nothing in return. I do not wish to dwell on these points, for I think my honourable Friend has really placed this Amendment on the Paper rather with a view to calling attention to an important subject than of pressing the Amendment in this particular form. The subject is, no doubt, one of very great importance. We have levied in this country for many years income tax on incomes received, from whatever source they happen to come. Of late years, some of our self-governing Colonies have imitated our example, and have levied an income tax, varying in kind, but generally, I think, on incomes made in each Colony. Now, my honourable Friend, in the interests of these Colonies, 108 makes a suggestion to this House that we should give up a portion of our taxation because the Colonies wish to appropriate it. I do not think he quite appreciates the magnitude of the sum which he proposes to deal with. He spoke of £180,000, but I believe that the annual income we should lose would certainly not be less than half a million. That is a very serious proposal, and one which should certainly not be accepted as a mere Amendment to a clause. But I would further point out to my honourable Friend that the matter cannot be confined to income tax alone. There may be—and I am pretty certain there are—taxes in the Colonies which are not levied as income tax, but which are just as much a tax on property as income tax itself; and, further, some of the Colonies which have taken to levying income tax of late years are the very Colonies which are imposing the heaviest burden on this country by their taxation of imports. I think I have said enough to show that it is impossible to deal with this matter as if it alluded to income tax alone; but, even if it did, I have something further to say. My honourable Friend referred to the matter as if the taxation raised by income tax in the Colonies and in this country were devoted to the same purposes. I am disposed to demur to that proposition. Our income tax was certainly in its origin rather, I think, in the nature of a war tax. If we are unfortunate enough to be engaged in war, it is certainly one of the taxes which would at once be raised, and the burden of war must, as we all admit, largely fall on the income tax payer. It is a part of our taxation, therefore, which is specially responsible for the defence of the country, and not only that, but the defence of the Empire at large. The income tax of the Colonies, and, indeed, their whole system of taxation, is certainly not Imperial. It is hardly even national; it is more municipal in its character. We bear a burden here for the defence of the Empire—a burden largely falling on income tax payers, and not borne to any appreciable extent by the inhabitants of our Colonies. That is a difference which I certainly think ought not to be neglected. But I am very far from saying that the matter is one not deserving of consideration; only I would suggest to my honourable Friend that it can only 109 be considered in dealing with the whole system of the financial relations between the Colonies and ourselves. If it should seem good to our Colonies to have regard —as the great Dominion of Canada recently had regard—to the advantage which might be conferred on this country by opening their ports more freely to our manufactures and products, then a case might arise in which we might consider any real fiscal grievance of which they may complain. At present, however, I do not think the matter is ripe for any action at all, and I hope my honourable Friend will be satisfied on this occasion with having called attention to it. I may point out that the proposal is quite different from what was done in 1894. The right honourable Gentleman opposite was then proposing an entirely new duty, and the question arose as to how property in the Colonies should be dealt with. The income tax was introduced years before any such taxation was dreamed of in our Colonies, and has gone on ever since, and certainly I cannot at the present time allow our Colonies to appropriate taxation which, in my humble opinion, belongs to ourselves.
§ Amendment, by leave, withdrawn.
§ MR. T. R. BUCHANAN (Aberdeenshire, E.)
During the three years which the Chancellor of the Exchequer has been in office he has made no attempt to reduce the burden upon the income tax payers of this country until he made his recent proposal with regard to certain incomes. It is a fact that he has made no attempt to reduce the general burden of the taxpayer; and this tax which we are row discussing apparently is likely to become a permanent item in the Chancellor of the Exchequer's Budget. Now, I do wish to urge upon him the desirability of considering the possibility of making a general reduction upon the income tax payers of this country upon general grounds. In replying to the Amendment of my honourable Friend the Chancellor of the Exchequer described the income tax as being more of a war tax and more especially responsible for the defence of the country and of the Empire. Well, 110 that being so, Mr. Lowther, surely at the present time, if the right honourable Gentleman had the opportunity, or there was a possibility of making any reduction, the income tax was a tax which ought to have attracted his attention. Now, the ground on which he has maintained that he was justified in keeping this tax at its present figure being that he has had to provide for a very considerable amount of naval and military expenditure, and that there are rumours of war in the future, surely it is desirable, when the circumstances are such as I have described, that the Chancellor of the Exchequer should take steps to reduce the income tax to its normal standard. In his speech of ten years ago, which I alluded to the other night, he objected to the tax being taken in a normal year at 8d. in the £, but he said he had inherited it from his predecessors, and it has stood at that figure during the three years he has been in office. Well, Sir, we should like some assurance from him that he does not now consider that 8d. in the £ is a normal figure at which it should stand in times of peace and prosperity which he has been enjoying, whatever the possibility of war may be in the future. Now, he has not given us any assurance of that sort. This year in his Budget speech he defended himself against making any attempt to reduce the income tax over the whole body of the taxpayers on two grounds. In the first place he said that he could not afford it, and in the second place he said that as between indirect and direct taxation there had been a very large increase in indirect taxation during the past three years, and therefore he thought that indirect taxation deserved some attention from him. Now, upon that last argument I should like to say this: it is perfectly true that during these past three years there has been a considerable increase of indirect taxation, but there has been an even greater increase in the revenue returns from direct taxation, and even from the income tax. The Chancellor of the Exchequer himself published, a couple of years ago, an explanatory Paper showing for a series of years the proportion taxation got from direct and indirect sources, although it does not include the actual years which we are now dealing with; but upon his own 111 figures I think it is clear that direct taxation needs his attention rather more than indirect taxation. Now, the Chancellor of the Exchequer used a further argument. He said that a penny off the income tax meant a reduction of £2,100,000 of money, and as he had only £1,500,000 to dispose of, he therefore could not afford to take a penny off the income tax. Now there are two answers to that. It is possible to take off even a halfpenny, if you cannot take off a penny, and that has been done upon a previous occasion. In the second place it might have been possible to take off a penny, because the whole amount would not come in the course of the present year, and his Estimates were for rising revenues in all the departments, and in the course of the year he would have been able to recoup himself. But, however that may be, the time for doing anything of the kind this year is past and gone, for he has made his proposals, and the House must abide by them. I would put it to him with regard to the future, and upon the grounds of defence that he has given himself of the increase: is it not desirable that in time of anxiety, when emergency may arise in any part of the world, he should be prepared to get as much as possible from this income tax, which has served the Exchequer so well in the past, and is likely to serve it well in the future? I venture to think that anyone in this House will consider that 8d. is too high a figure at which the income tax should be kept; and if the Chancellor of the Exchequer is to get the full benefit from that tax he should have taken an opportunity during his three years of prosperity of reducing it to 7d. or 6d. with a view to any future emergency. I think we should like some assurance from the Chancellor of the Exchequer that, at any rate in the future, if prosperity still visits him as it has done in the past, he will consider the expediency of reducing the tax on the general body of income tax payers, so that if any emergency should arise he will get the full benefit of it for the purposes for which it was originally intended, and which he himself recognises is of the first importance.
§ * THE CHANCELLOR OF THE EXCHEQUER
I do not think that I need trouble the Committee at any length upon this point. If the honourable Member, who is so fond of referring to my previous speech, will be kind enough to refer to other portions of that speech he will see that my opinion was that when the revenue from customs and excise exceeded,£42,000,000 there ought to be a redaction in indirect taxation. Now, Sir, the revenue has reached£50,000,000; therefore I do not think that any apology is needed for my reducing indirect taxation under these circumstances. I do not know whether the honourable Gentleman means to suggest that I should have spent this surplus by devoting it to the reduction of the income tax by a halfpenny rather than reducing the duty on tobacco. I do not think that he has expressed any opinion in that direction hitherto. But if he holds that opinion I would venture to say that he ought to have raised the matter at an earlier period of the Budget. I can only say that I do not think that any reduction in the income tax would have been advisable under the circumstances, for a reduction of one penny would have cost the Treasury £1,750,000, and the resources at my disposal did not allow of my making such a change.
§ MR. BUXTON (Tower Hamlets, Poplar)
We were discussing just now the difference between the reduction in the tobacco duty and the reduction in the tea duty, but I think the House, and I am quite sure the country, holds the view that if a reduction is made it ought to be made in indirect taxation and in direct taxation. No doubt 8d. is a high figure, but it is not now such a heavy burden as the 7d. income tax of Sir Robert Peel, because under our present system the burden does not press so heavily upon the smaller incomes. The right honourable Gentleman this year, by a proposal with which I agree, has given still further relief to those on whom the income tax presses most heavily. The Chancellor of the Exchequer 113 said the income tax was practically a war tax, but it was not so originally, far it was imposed for general fiscal purposes, but in consequence of our great military and naval expenditure it has now become a war tax. But, Sir, I am afraid that so long as we have the present armed state of Europe, and the present relations between the different Continental countries, we must expect to have the war tax continued, because, practically, we have, as the honourable Member knows, every year, even in times of peace, to bear nearly the same burdens. Under these circumstances I for one do not think that the income tax is too high under present conditions, and I should vary strongly deprecate the reduction of the income tax if it had the effect of postponing a reduction in indirect taxation, for we have not yet reached an equality between direct and indirect taxation, and when the Chancellor of the Exchequer has sufficient funds at his command I trust he will continue to apply them to the relief of indirect taxation.
MR. GIBSON BOWLES (Lynn Regis)
I must dispute the assertion which has been made that the country is satisfied that no reduction in the in come tax is necessary. Those who take an interest in the taxation of the country know that the one thing which they expected was to see some reduction in the income tax, and the general hope was that the Chancellor of the Exchequer might be able to give a reduction of a penny. The figures show that the right honourable Gentleman was in a position to give a halfpenny, and it is a very great pity that he did not do it. The reduction on tobacco will appear in the form of less water and a little more tobacco, but there will be no diminution in the price. Had he made a reduction of a half-penny it would have been to his credit for ever. He has, however, made an unfortunate mistake, and he will have his reward in getting no gratitude for it from anybody at all.
That clause 6 stand part of the Bill.
§ Agreed to without a Division.