THE TAXATION OF LUXURIES.
1111E new French Luxury Tax has only been in operation a few weeks, but already it is announced that the tax is working well and bringing in even more revenue than was anticipated. According to a message from Paris, the Minister of Finance states that it will yield at least £40,000,000 in the current year, and probably much more. In addition to yielding this large revenue to the public Exchequer, the tax, as was to be expected, has to some extent checked the con- sumption of such unmistakable luxuries as silver goods, jewellery, and perfumes. So far as it has operated in this manner it has been as valuable to the nation as in yielding revenue, for it has prevented the diversion of national energy to the production of luxuries at a moment when all the efforts of the nation are required for winning the war. The Spectator has repeatedly urged the imposition of a similar tax for the United Kingdom as a war measure ; but before reciting our arguments for that course it is well to describe exactly what has been done in France.
The principle of the French Luxury Tax was adopted by the Chamber of Deputies last year. That principle was that a 10 per cent. tax, to be collected by the shopkeeper and paid over to the State, should be levied on the retail prices of all articles of luxury. Next came the crucial question how to define articles of luxury. This was referred to the Budget Commission of the Chamber, and a somewhat elaborate but well-thought-out scheme was drawn up. The idea under- lying that scheme is that certain articles are by their character always luxuries whatever their price may be, whereas other articles are only to be treated as luxuries when their price exceeds a certain figure. The first category comprises such articles as jewellery, whether of gold, silver, or platinum, billiard-tables, silk underclothing, curios, spirits, liqueurs, perfumes, sporting guns, art editions, pictures, phonographs, and mechanical pianos. Photographic apparatus and motor- cars are also included in this category, but with the provision that if they are used for professional purposes they are to be exempt from the Luxury Tax. This provision applies as well to some other commodities. The second category of articles is necessarily longer and more detailed. An elaborate list has been drawn up of articles such as imitation jewellery, children's underclothing, gaiters, bookbinding, pleasure dogs, boots, tablecloths, tea and coffee services, suits for children, suits for men, and costumes for women. Prices are specified for these articles. If the articles are sold below the fixed price they are not taxed ; if they are above this price, they are treated as luxuries and subject to the 10 per cent. tax. For example, imitation jewellery sold for less than 10 francs is untaxed ; a travelling-clock will not be taxed if the price is less than 20 francs ; a pleasure dog is only classified as a luxury when it costa more than 40 francs ; men's suits costing 200 francs are luxuries ; women's costumes may go up to 250 francs before becoming liable to the tax. The purpose here is clear enough.. Even in war time we must all have clothing ; and if it is of a cheap character it may be treated as a necessary of life and exempted from taxation. On the other hand, when the price rises to a fancy figure such clothing clearly becomes a luxury and ought to be taxed. The only objection to the French plan is that it involves a very elaborate schedule of articles, with a further complication in the collection of the tax. No great hardship would be done to any section of the community if the tax were levied on cheap as well as on dear clothing, for the purchaser who out of patriotism or out of poverty bought the cheap clothing would pay the smaller tax. The same consideration applies even more strongly to such commodities as imitation jewellery and pleasure dogs. Apart from this issue, the French tax on luxuries gives an example which certainly ought to be followed by the Chancellor of the Exchequer in his coming Budget. Whether he intends to follow it or not is still a mystery, for, in spite of rumours in the Press, the Budget secrets are well kept.
As regards the general principle of a tax on luxuries we can- not do better than go back to the statement made by Adam Smith in the Wealth of Nations. The third. of his four famous maxims with regard to taxation reads as follows :— " Every tax ought to be levied at the time, or in the manner in which it is most likely to be convenient for the contributor to pay it. A tax upon the rent of land or of houses, payable at the same term at which such rents are usually paid, is levied at the time when it is most likely to be convenient for the contributor to pay ; or, when he is most likely to have wherewithal to pay. Taxes upon such consumable goods as are articles of luxury are all finally paid by the consumer, and generally in a manner that is very convenient for him. He pays them by little and little, as he has occasion to buy the goods. As he is at liberty too, either to buy, or not to buy as he pleases, it must be his own fault if he ever suffers any considerable inconveniency from such taxes."
The principle here laid down is applied already to a very considerable extent in the scheme of taxation by which the revenues of the United Kingdom are raised. We still tax houses, though to a very moderate extent ; we tax wine, beer, spirits, tobacco, to a very considerable extent ; there are small taxes on dogs, guns, carriages, men-servants, motor-cars, and playing-cards ; there are taxes on tea, coffee, cocoa, and sugar ; and more recently taxes have been imposed on theatrical and other entertainments, on matches, and on various imported manufactured articles such as clocks and watches and hats. But many of the taxes on consumable commodities which were in operation in Adam Smith's time, such as the taxes on salt, leather, soap, and candles, have since been swept away, the reason being that these were taxes levied upon the necessaries of life at a time when large masses of the vopulation were extremely poor. That condition no longer exists, and it may safely be said that a small tax even on such articles as these would no longer be an appreciable hardship to the population of the United Kingdom. Other taxes on consumable com- modities have been abolished because they were levied at an early stage of manufacture or commerce, and consequently interfered with trade. The merit of the new French tax on the retail price of consumable commodities is that it is levied at the final stage when the article passes into the hands of the ultimate consumer, so that it involves a minimum of inter- ference with the ordinary processes of trade.
That public opinion in this country would accept such a tax as the French have adopted there can be little doubt, when we note the enormous prosperity of the great drapery stores and other luxury shops. Many of these houses are doing four and five times the business that they were doing before the war. They have put up their prices fifty or even a hundred per cent., and still business goes on expanding. It would therefore be absurd for the proprietors of these houses to oppose a moderate tax of 10 per cent. on the articles they sell. The simplest manner of imposing the tax would be to require all shopkeepers specifically to add 10 per cent. to the price of every article sold, except in the case of certain articles of food, such as bread, meat, sugar, and bacon. The shopkeeper would pay over the tax to the Inland Revenue Department after deducting a commission for the trouble of collection. Needless to say, the tax should be made to apply to auction sales. In addition, there ought to be a careful revision of our existing Customs and Excise duties, so as to level them up wherever possible, and in many cases to restore old duties which were abolished when our need for revenue was less. The case for these reforms at the present crisis is urgent. The Exchequer needs all the revenue it can get, and it cannot get revenue by any method which causes so little hardship to the taxpayer as by taxing luxuries. Moreover, so far as such taxation dis- courages expenditure, it leaves the taxpayer with more money to invest in War Loans, and frees labour for national purposes.
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