226 



REPORT — 1878. 



A series of Nominal Incomes of the same real present worth, ivith their com- 

 parative estimation by the two measures of Years' purchase and Interest- 

 value. Each income is formed at the same rate, viz., £4: per cent, of 

 real profit, every apparent excess representing the amount of undeducted 

 outgoings that the income exhibiting it contains. 



parison of the figures of the second and fourth columns, representing the 

 respective valuations of the same series of incomes by the two measured 

 shows that these valuations are in exact proportion, and shows therefore 

 that at a given rate per cent., the taxation of an income on its interest- 

 value is the same as its taxation on the number of years' purchase 

 expressing its capital-value. Thus for example in the above table an 

 income of 4 per cent, is worth 25 years' purchase, and all of it, or 100 per 

 cent., is true interest-value. An income of 8 per cent, is worth 12 5 

 years' purchase, and its interest- value is only 50 per cent, of its amount, 

 the other 50 per cent, being outgoings of principal. The figures express- 

 ing the number of years' purchase of the two incomes, viz., 25 12"5, and 

 the figures expressing their interest-value, viz., 100 and 50, are propor- 

 tionals. So with any other corresponding numbers of the two columns, 

 and generally the two lines of figures, while proportional to each other, 

 have a measurable relation to the line of figures expressing the outgoings. 

 These relations, which strictly follow from the nature of capital and 

 interest, or principal and interest, are important, because though, for 

 reasons stated in the first Report, an interest-value measure as represent- 

 ing the annual increment or actual increase of value, is a better measure 

 of annual taxation than that of capital, yet a knowledge of the capital- 

 value of an income is often a rapid and useful mode of getting at its 

 interest- value. By means of such a table as is here shown, the value in 

 years' purchase of any income from property or labour being given, the 

 amount of outgoings to be deducted in order to maintain the source's 

 principal unimpaired, or the amount of the interest- value, can be at once 

 exhibited. As an outcome of this comparison it may be said that to the 

 three equivalent sides or illustrations of the assessment doctrine of in- 

 comes already given, viz., " Taxation of Interest-value," " Non-taxation of 

 Principal as Income," " Exemption of Essential Outgoings," we may add 

 what is practically a fourth, viz., " Taxation according to their Years' 

 Purchase," always provided that a uniformity of basis and application be 

 preserved. 



