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Tuesday, 8 March 1932

Mr GULLETT (Henty) (Minister for Trade and Customs) . - I lay on the table of the House the Tariff Board's report and recommendation on tobacco, and move -

That the paper be printed.

Honorable members are already, I think, quite familiar with the proposed changes in duty and excise rates imposed a week or two ago upon tobacco. There are, in effect, three sets of proposals which are exercising the minds of honorable members at the present time. The Scullin Government imposed an import duty of 5s. 2d., and an excise duty of 2s. 4d. That gave to the Australian tobacco-growing industry a protection of 5s. 2d. per pound. The Government's proposal' regarding tobacco, which is the recommendation of the Tariff Board, is to impose an import duty of 3s. and an excise duty of 4s. 6d. ou both imported and Australian tobacco. That will afford a protection of 3s. per lb. Then there is the alternative proposal advanced by the Leader of the Country party (Dr. Earle Page) at a deputation in this House on Friday last, of an import duty of 3s., an excise duty on tobacco manufactured from imported leaf at the rate of 5s. 4d., and an excise impost of 3s. 4d. per lb. upon manufactures from the Australian .leaf.

That proposal, if adopted, would have the effect of restoring the protection of 5s. per lb.

The Prime Minister has said that at present it is the intention of the Government to adhere to its proposal, which is based on the report of the Tariff Board, but we are quite prepared to give consideration to any case for a variation that may be made by honorable members. The changes in tobacco duties that we have brought down are based upon the Tariff Board's report of the 3rd February last,, which arose out of a public inquiry held in the closing months of last year, so that the evidence and the consideration of it are of recent date. I do not propose to detain honorable members by giving a sketch of the history of tobacco-growing in Australia, but the story of the industry has' been a somewhat chequered one. The industry commenced more than 75 years ago, and was, over the ten years ending 1929, producing less than 10 per cent, of Australian requirements, which at its peak in our years of prosperity reached 23,000,000 lb. Nor need I delay honorable members with speculation as to the causes behind the prolonged failure of the industry to take a stronger place among the minor rural industries of the Commonwealth. AH honorable members will agree, however, that until recent years, the average Australian leaf produced, as measured by the quantity of bright leaf grown, was not of a superior quality. Then came a change, and within recent years there has been a remarkable improvement in quality. In. 1929, the proportion of bright leaf to the total crop was about 20 per cent. Last year that proportion advanced to 35 per cent. We all trust that the improvement of quality is continuing. Circumstances now definitely point to a date, not more than a few years ahead, when Australia will be able to produce all its requirements of a quality which will commend itself to smokers, with the exception of small imports for blending. We hope to be able to grow within a few years not only the whole of our pipe tobacco, but also the whole, of our cigarette tobacco. The Government takes much satisfaction in that anticipation, and will do everything in its power to expedite its achievement.

We earnestly desire tlie change-over from the imported leaf to the Australian leaf. In our view, however, that change-over must be conditioned by one vital consideration which is this: The tobacco consumed in Australia during the period of change and afterwards must continue to yield to the Commonwealth Treasury a great flow of revenue. That is indispensable. The Government at this particular time .can be no party to a development which will deprive the Treasury of a large portion of its income. The House is familiar with tobacco as a prolific medium for raising revenue. This is true of Australia as it is true of all the world, especially since the war. At present the federal income from tobacco taxes amounts to about £6,500,000, equal to fi per head of our population. So that honorable members may get an idea of the relative importance of the smokers' contribution to revenue, I shall compare it with this year's estimates of yield from other taxes. For instance, income taxation is estimated at £9,820,000, so that the tobacco tax is to the Treasury 66 per cent, of the value of the income tax. The land tax yields £1,800,000, and is less than one-third as valuable as the tax from tobacco. Death duties yield only £1,400,000. Behind the Government's proposal, which is based on the Tariff Board's recommendation, is the clearest evidence that if the rate finally adopted by the Scullin Government were allowed to . stand, the revenue of £6,300,000 would at once begin heavily to fall. The estimated loss for the coming financial year is £1,000,000 and for 1933-34, between £2,000,000 and £3,000,000. In short, unless immediate and decisive steps are taken to correct the position on the lines recommended by the Tariff Board, and endorsed by the Government, Ave shall be faced with a loss of revenue which inevitably will prove fatal to the finances of the Commonwealth, to the whole of the economy plan, and to all that is expected, and rightly expected, from the preservation of that plan. The- Government, subject to its undertaking to listen to the representations made during this debate, cannot and will not contemplate the loss of £1,000,000 from tobacco in the coming financial year and of from £2,000,000 to £3,000,000 in the following year. The cause of this anticipated loss is obvious. Under the tariff of the late Government, imported tobacco paid a total tax of 7s.. 6d. ; tobacco from locally grown leaf paid 2s. id. The Treasury, therefore, lost 5s. 2d. per lb. ou every pound of tobacco grown in Australia.

Let me indicate to honorable members what the Treasury is being called upon to sacrifice for the assistance of this industry. The average yield of the tobacco crop in Australia over a recent ten-year period ;V0S 780 lb. per acre - SOO lb. in round figures. Therefore, every acre of Australian-grown tobacco costs the Treasury £200. That is the price which we are being called upon to pay in the change-over to the tariff policy of the Scullin Government. Last year the Australian tobacco crop was 1,800,000 lb. The crop at present maturing is estimated by the Tariff Board to yield 6,000,000 lb. weight of manufactured tobacco. On the figures which I have given this represents an intrinsic loss to the Treasury of £1,500,000, compared with the return for last year. The cost of landing American tobacco into an Australian factory at this moment is, on a generous estimate, ls. per lb. In order to assist the Australian industry to the extent of £300,000, therefore, the Treasury is being asked, under the conditions imposed by the Scullin Government, to suffer a loss of £1,500,000.

Mr Thompson - The Government could recoup itself through the Excise Department.

Mr GULLETT - The whole trouble has been caused because we have set out to do that very thing.

I want now to take a peep at the future, because it is in consequence of its apprehension of the future that the Government has been forced to reconsider the position of this industry. It is also because of our apprehension for the future that we cannot see our way clear to adopt the alternative plan put forward by the deputation of Australian tobacco-growers on Friday afternoon. Although the Australian crop of tobacco was 1,800,000 lb. last year, the estimated production for this year is 6,000.000 lb. a difference of more than 4,000,000 lb. This 4,000,000 lb. at 5s. 2d. per lb. would yield £1,000,000, and we stand to lose that- amount in the coming financial year. During the past season the acreage under tobacco in Australia expanded ten fold - from 2,200 acres to approximately 20,000 acres. Over many districts the season has been indifferent, and yields will be light, although this is not so on extensive irrigation areas. With a yield up to the average of the last ten-year period of 800 lb. per acre, the total crop this year would be 16,000,000 lb. ; but even half an average crop would give us8,000,000 lb. and a quarter average crop 4,000,000 lb. It will be seen, therefore, that an estimate of 6,000,000 lb. is conservative.

There are wide variations in the estimated yield of tobacco. The deputation on Friday estimated that the yield would be 5,000,000 lb. The departmental estimate, which was carefully made by competent excise officers is just under 10,000,000 lb. ; the Tariff Board estimate is 6,000,000 lb. I am not being unfair, therefore, in saying that 6,000,000 lb. is a conservative estimate. With a yield of 16,000.000 lb., the Government' would have lost, on the basis of the Scullin Government's policy, £3,500,000.

We must face the fact that very great areas have been specially cleared and are under tobacco for the first time this year, and that this must necessarily mean a big increase in the yield. Broadly speaking there is no limit to irrigation areas which are insured against drought. Everything points to the fact, therefore, that next year we shall produce at least the equivalent of the Australian need of pipe tobacco, and perhaps substantially more.

I wish to say a few words about the actions of the last Government in regard to tobacco. I cannot understand the demonstration of surprise made by honorable members opposite at the action which this Government has been obliged to take. I have abundant evidence that the Scullin Government clearly anticipated that a difficult position would arise. I do not suggest that that Government would have felt compelled to take precisely the same action as this Government has taken;but it would have had to do something like what we are doing. That the Scullin Government was aware of the situation which was developing is revealed by three steps which it took to meet the situation.

In the first place it referred the whole subject to the Tariff Board, with very significant terms of reference. Next, the present Deputy Leader of the Opposition, who was then Minister for Trade and Customs, stressed to the board the urgency of the inquiry. In the third place, the Scullin Government appointed a special committee or group of heads of departments interested to observe and report on revenue reduction.. Taking the first point to which I have referred, I direct the attention of honorable members opposite to the fact that on the30th October last, a little over four months ago, the then Minister for Trade and Customs referred to the Tariff Board for inquiry and report, in accordance with the terms of the Tariff Board Act, the following questions : -

1.   The amount of protection necessary for the economic development of the Australian tobacco leaf-growing industry so as to protect the revenue while at the same time giving adequate protection to the Australian tobaccogrowing industry.

2.   The alteration (if any) which may at once be necessary inthe rates of duty of tobacco leaf and tobacco manufactures (including cigarettes) at present operating under the Customs and Excise Tariffs.

In dealing with question No. 2 it is desired that the Tariff Board should consider the desirability of recommending a sliding scale of Customs and Excise rates of duty which will as the production of Australian leaf varies -

(a)   give the Australian grower adequate protection ;

(b)   maintain the revenue as Australian production of tobacco leaf increases; and

(c)   add as little as possible to the price now paid by the Australian consumer for manufactured tobacco and cigarettes.

Mr Scullin - Those are good terms of reference.

Mr GULLETT - In my opinion, the Board was set an impossible task. The last Minister for Trade and Customs, who is now Deputy Leader of the Opposition (Mr. Forde), personally minuted the reference as follows : " Please treat as urgent - F. M. F." That shows how concerned the last Government was about this matter. The reference was sent to the board on the 30th October, and the board held its first sitting in Brisbane on the 16th November. One day would be occupied in the reference going to Melbourne, three days would be occupied in the board travelling from Melbourne to Brisbane, and seven days had to elapse after the insertion of the usual advertisement, notifying that evidence would be taken. So there is no doubt as to the fact that the last Government was just asmuch concerned as the present Ministry regarding the effect of the duties on the revenue.

Some time during last year - after the return of Mr. Theodore to the Treasury I think - the threatened loss of revenue so alarmed the last Government that Mr. Theodore set tip a committee comprising the Comptroller-General of Customs, Mr. Hall, the Assistant Secretary to the Treasury, Mr. Sheehan, and the Acting Commonwealth Statistician, Professor Giblin, to investigate and report upon the effect on the revenue of the new tobacco duties, and to make recommendations to the Government concerning them. Two members of the committee forwarded a memorandum dated, curiously enough, the 29th October, the day before the reference was sent to the Tariff Board by the last Minister for Trade and Customs, emphasizing the seriousness of the position, and clearly expressing the view that the Government was faced with a most serious loss of revenue, and that the only way in which the danger could be averted was by increasing, the excise rates. In that memorandum, the committee expressed the following opinion regarding the industry generally. -

The costs of production are heavier than in America, but not by anything approaching the amount of the duty. The Agricultural Superintendent of Victoria reckons the cost at about 1s. per lb. Evenat 3s. or 4s. per lb. then, tobacco-growing is becoming very profitable. The contrast with every other form of landproduction (except sugar), is very striking. Consequently, there is it rush by persons; fitted and unfitted' for the enterprise, to grow tobacco on anyland, suitable or unsuitable. (Queensland is planning to supply the whole of Australian requirements in a few years, and a.landboom isdeveloping strongly infavoured areas. In other States, there is. a similar movement. Enough seedhas been distributed, chiefly through the Council of Scientific and IndustrialResearch, and the Queensland Government to plant an area sufficient to provide for thewhole of Australian consumption. Land valued are rising, vested interests are being created. All the conditions areset for a repetition of the sugar imbroglio, with, local prices even more out of proportion- to world prices.

There is ample evidence that the last Government knew precisely what had taken place. The position that was developing was brought under its attention by the consultative committee for science and development associated with the Prime Minister's Department, and as early as the 25th August last, a memorandum upon the subject, signed by Mr. Gepp, the chairman of the committee, was forwarded to the Assistant Minister, Senator Daly. Mr. Gepp there outlined the position much as did the special committee, and again pointed out that the only way to correct the drift, even in the interests of the industry in Australia, was to increase the excise rates of duty. Senator Daly forwarded this opinion to the last Minister for Trade and Customs, and, in his covering letter, he said -

There can be no doubt thatunder existing conditions revenue shrinkage must result from the enormous expansion of the tobacco industry which is taking place. This situation can only be met by levelling up excise to compensate for loss of customs duty. If yon decide to take action to this end, I think that the process should be a gradual one, in order to enable the industry to properly establish itself.

Unhappily, the loss of revenue threatened to become of such magnitude that the Tariff Board found, and the Government agreed with it, that small successive steps would be insufficient to cope with the situation, and that the correction of the position must be immediate and substantial. Speaking in this House on the 20th October last, the Deputy Leader of the Opposition remarked -

I.   realize that the whole matter of duties on tobacco will halve to be re-considered as our industries develop; that as we change over to the Australian leaf our import duties will decrease.

The implication there is that the excise duties must be substantially increased. Ifthe last Government had remained in office it must have taken steps almost identical with those now proposed.

Mr.Forde. - No.

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