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Friday, 21 November 1941

Mr FADDEN (Darling Downs) (Leader of the Opposition) . - The avowed purpose of this bill isto increase revenue, consistent with the budget proposals, by making greater inroads upon the field of war-time company income. With the principle of the measure the Opposition has no quarrel; but we consider that the proposal contained in it will place too heavy a burden upon the public companies. Companies, public and private, constitute a desirable field of investment, and it will generally be appreciated that company formation has contributed to the economic development and well-being of Australia. Outside governments, companies are the biggest employers of labour. Cutting into the dividend-paying capacity of the companies to the degree proposed will have disadvantageous reactions. In short, the Government's proposal is to obtain an- additional £4,500,000 from public companies 'by reducing from S per cent, to- 4 per cent.- the ratio of profit to capital which companies may earn before being subjected to .the' wartime company tax.- Not even the German company tax;- which ".had .a disastrous effect on the financial bases of companies, was so -se vere as the tax-proposed in this measure; ' Germany adopted 6 per cent, as the maximum ' above, .which .profits would be taxed. ' The. future will prove what -an oppressive measure this bill is.

I -ask honorable members to contrast the profit limitation of 4 per cent, proposed in this bill with the' H per cent, tax-free interest paid on Commonwealth leans. The Government' must face the fact that it will have- to call upon the generosity, patriotism, and capacity of the Australian investing public, which includes companies, in order to obtain the large sums of money required to fulfil its budgetary obligations before the 30th June next. The recent £100,000,000 cash and conversion loan was acclaimed a success, lt was over-subscribed. What must bo borne in mind,, however, is the fact that of that loan only £30,000.000 of new money was obtained. The balance represented conversions of maturing loans. In order to fulfil its; budget, before, the 30th June next, the Government must bridge the gap of £.137,000.000 between anticipated revenue and expenditure. Already £30,000,000 has been raised, and £107,000,000 remains to be found, exclusive of £20,000,000 for the State.'.- Since the Government has decided to adhere to the voluntary system of raising loans it will have to rely on the Australian public for the money required. Hitherto, public companies have been among the largest subscribers to. Common-wealth loans, but, I submit that, after having paid this tax, as well as all pf 'the other taxes inflicted upon' them, neither the companies themselves -nor the shareholders will have the wherewithal to contribute towards future loans to the extent required. The intention of the original war-time' company tax, which was introduced by the Menzies Government; was to require companies earning high profits as the result of the war to contribute towards the finances of the war. In other words, it was a super-tax, a tax in' addition to the ordinary company tax, which is a flat-rate tax. The war-time company, tax has no relation to pre-war standards .or conditions. It is simply a tax which requires companies to contribute to the revenues df the Commonwealth any profits earned above a fair .and reasonable margin of profit. The Menzies .Government required companies earning. . more than. 8 per cent, on the shareholder's funds to make a further contribution to Consolidated Revenue. This . Government, ' in its search for revenue, is advancing further into the field, and is proposing to ask the whole of the public companies of Australia to pay, not only the ordinary company tax, at an increased flat rate, but also the wartime company tax on all profits in excess of 4 per cent, on capital. The Government's expectations as to revenue from that source this year may be realized, because one-third of the year has expired, and the tax will be levied on the profits made in the year ended the 30th June last, but the companies will have to readjust themselves in order to meet this extra infliction next year. By reducing the percentage of profit above which this tax will be' imposed from ' 8 per cent, to 4-per cent., the Government is putting a premium, on inefficiency, waste and extravagance. With all the disadvantages' attached- to private enterprise and the risk attached to capital, the companies will not persevere. Rather than make this contribution, managements will allot more. of their .time to leisure, and less to work and will increase their internal: and external goodwill.

The effective taxable income of public and private companies in Australia amounts to £98,000,000. I have npt been able to apportion that amount as between public companies and private companies. Private companies are not .affected by this; there is no room for them to be affected, unless they be asked to contribute from their capital. At any rate, they are afflicted by the ordinary .income tax; so there is no charity in excluding them. Of that £98,000,000 the Commonwealth proposes to take £26,500,000, and the States £15,000,000. An additional £2,000,000 of tax is paid overseas. The war loan contribution is included in the £98,000,000, so that the amount left after deducting £48,000,000 is £50,000,000., Superficially it would appear that the' companies will pay tax at the rate of approximately 9s. in the £1. The method of taxing companies in Australia is different from that which obtains inGreat Britain, New Zealand, Canada and other British dominions. I need not go into the details of their systems, but the individual shareholder in Australia is required to pay tax upon his dividend without rebate of the amount of tax paid by the company of which he is a shareholder. That rebate was removed as a war measure. The companies themselves pay approximately 9s. in the £1, and the individual shareholders are required to forgo the rebate of the amount of tax paid by the company and have to pay tax at the maximum rate of 16s. 8d. in the £1. So I venture the opinion that the effective rate of tax on companies is11s. or 12s. in the £1. The effect that this measure must have upon the economic welfare of Australia must be self-evident to every discerning person. I could cite numbers of examples of how this proposed new tax will operate, but one will suffice. The following table shows the position of a company with a capital of £500,000 : -



Thesefigures show how this proposed tax will withdraw from companies the incentive to develop and make judicious provision for their continued existence. I could refer to dozens of similar instances. The effect of this proposal should be obvious to the Government. If it intends to implement the basic principle of the policy announced the other day by the Minister for War Organization of Industry (Mr. Dedman), it could do so in no more effective or disastrous way. The infliction of this extra super-tax upon the public companies of Australia will have farreaching and damaging effects upon our whole economic system.Company activity has played a most important part in Australia's economic history, and it is still capable of doing so. I wish to remove the misconception which exists in the minds of the Government and its supporters about the so-called " big companies ". There is no such thing as a big company. A company may appear to be big by virtue of the amount of its subscribed capital, but that capital has come from thousands of small shareholders, whose average holdings probably do not exceed £300 or £400. I can produce facts to prove conclusively that these alleged big companies represent nothing more than an aggregation of capital subscribed by people who have confidence in the future of Australia, and who are prepared to contribute to the development of this form of private enterprise by means of their investments. If the Govern ment wishes to do away with this most desirable form of capital aggregation and economic activity, it could choose no more effective means than that proposed in this bill. The Opposition is opposed to the reduction of the exempt profit rate from 8 per cent, to 4 per cent., and I intend to move, at the appropriate time, that the minimum should be 6 per cent. That was the rate of profit allowed in Germany, and surely that country would not be suspected of being generous to companies! All honorable members agree that companies of certain grades of dividend-paying capacity should make an extra contribution to our war effort. But to impose this proposed super-tax upon companies that arc earning only 4 per cent, on their defined capital is to go to a ridiculous extreme, which will drive them into liquidation or seriously reduce their efficiency and energy. The disastrous, effects of such a tax would, continue far into the future. What company would endeavour to continue in operation solely in order to contribute to the revenue of the Commonwealth, when, it could wind up its affairs and devote the resultant capital to the purchase of 'Commonwealth bonds bearing interest at the rate of 8£ per "cent. - % per cent, less than, this Government considers ought to bc the 'maximum profit of any public company? The Opposition is definitely opposed to this proposal, arid will fight strenuously for the imposition of a limit of 6 per cent, instead of 4 per cent.

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