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Wednesday, 14 October 1931


Mr CROUCH (Corangamite) .- I regret exceedingly that the Deputy. Leader of the Opposition (Mr. Latham) is not present to participate in the debate. The early history of this legislation may not be known to some honorable members. Originally trouble arose over the taxation of State instrumentalities by the Federal Government, and vice versa. The idea originally at the bottom of this legislation was that, if the Commonwealth Government were to tax State public servants, it would interfere with State rights. It was also considered that, if a State had the power to tax the incomes of federal public servants resident in the State, it would be an encroachment of the administration of the federal body. The case of D' Emden v. Pedder in Tasmania, concerned the right of a State to charge stamp duty on the salary received by a federal public servant. It was decided by the High Court of Australia that the State of. Tasmania had not the right to insist upon federal public servants paying such stamp duty. That decision still applies, and through it federal public servants escape quite a large amount of taxation.

Then arose a question as to the power of a State to tax federal salaries at' all. A test case was instituted by the Victorian Commissioner of Taxation, Mr. Prout Webb. It was decided that two members of the then Federal Government,the Prime Minister and Treasurer, Mr.

Deakin, and Sir William Lyne, should represent the Ministry, that I should represent the members, and that Baxter and another, two public servants, should represent federal public servants. The case went to the High Court. For the first time in Australia, that court applied a decision given in the United States of America - that of McCulloch v. the State of Maryland - which provided that States could not tax a bank instituted under federal authority in the United States of America, a decision that still holds good in that country. The finding of the High Court was in favour of Mr. Deakin and Sir William Lyne, myself, and the two public servants. In 1907, the Commonwealth Parliament passed legislation to meet what was regarded as a possible anomaly, and enabled State taxation to be applied to the salaries of federal public servants resident im States. Sir Thomas Bent, Premier of Victoria, was very dissatisfied with the position as it stood, and he induced Mr. Outtrim, Deputy Commissioner of Taxes, and then on the eve of retirement, to defend a case brought by Mr. Prout Webb, Commissioner of Taxes for Victoria, in the Supreme Court of that State. The decision was against the Commissioner of Taxes, and was based on that given in the case that I have already narrated. Mr. Webb appealed direct to the Privy Council, which decided that States possessed the right to apply their income taxation laws to salaries received by federal public servants resident within their borders. Sir Thomas Bent then applied to the Privy Council for the rehearing of the cases covered by Webb v. Deakin and others. However, in view of the act passed by the Federal Parliament in 1907, the Privy Council refused leave to appeal, on the ground that any decision reached would bc useless, as it was unnecessary in view of the legislative action of the Commonwealth Government. There have been no further appeals to the Privy. Council in the matter. I venture the opinion that, if an appeal were made under this section, the legislation that we are now passing would be declared ultra vires. There is not the slightest doubt that, so long as we retain in our Constitution the right to appeal to the Privy Council, and recognize the decision of that body as final, the finding in the case of Webb v. Outtrim must hold good.

There will be difficulties in connexion with this legislation. To begin with, previous Commonwealth legislation provides -that, for taxation purposes, every public servant resident in a State is to be treated similarly to State public servants resident in that State. To my mind that is only fair. The Commonwealth public servant receives the same protection from the State laws as does his colleague in the State Service, and he must, therefore, accept his share of the responsibility for the mismanagement and extravagance of that State, if there has been such. I believe that, by this legislation, we shall bring about an anomaly which will cause resentment against the protection afforded to Commonwealth public servants resident in States. I do not think that a federal member of Parliament, who is resident in a State, should escape taxation similar to that levied upon a State member. This act provides that, by proclamation of the Governor-General, federal members and federal public servants shall be exempted from certain phases of State taxation.


Mr SCULLIN (YARRA, VICTORIA) - It will not have that effect in Victoria. This Parliament could pass legislation that would .produce that result, but it is not doing so.


Mr CROUCH - There might be a Premier in Victoria who would decide to introduce income tax legislation, declaring that any person resident in Victoria, and receiving over £500 a year, should be subjected to a. full 100 per cent. State tax on the excess over £600, as was recently proposed by Mr. Lang in New South Wales. If that were done, these provisions would apply to Victoria. In my opinion, it is a mistake to distinguish between citizens living in and enjoying the amenities of the same State in regard to taxation, whether their salaries are paid by the Commonwealth Government or by a State Government..


Mr Scullin - It has been done because in New South Wales, taxation is calculated on the basis of a wage reduction which complicates the position. We must try to meet that complication.


Mr CROUCH -- I agree with that; but New South Wales State public servants must pay the full amount of the taxation, whatever it is.


Mr Scullin - Their taxation is calculated as including the reduction.


Mr CROUCH - In my opinion, all citizens, whether Federal public servants or State servants, should be placed on the same basis in regard to taxation within the State of which they are common citizens.


Mr Scullin - That is what we are doing as nearly as we can.







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