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Friday, 21 November 1941

Dr PRICE (BOOTHBY, SOUTH AUSTRALIA) .- Like other honorable members of the Opposition I realize that in war-time we all must help to pass most of the legislation now before us. Nevertheless, the proposals of this bill are so severe and dangerous that we have been flooded with protests against, certain of its provisions, nol; only from companies, taxpayers' associations, and comparatively well-to-do people, but also from small shareholders and people in poorer circumstances. We therefore consider that, an obligation rests upon us - in fact it is our duty - to issuesome warnings and to. seek some amendments of the bill. The conditions which the Government, has laid down are too onerous, and we ask for their modification. The tax should start when profits reach 6 per cent, as against the S per cent, now operating. The Government's proposal to make tlie starting point 4 per cent, is too severe.

We must remember three things in connexion with this measure. The first is that the proposed starting point of the tax, 4 per cent., is extremely low and will have harsh effects. The Leader of the Opposition (Mr. Fadden) has stated that the corresponding tax in Germany begins at 6 per cent. The Treasurer (Mr. Chifley) has therefore out-Hitlered Hitler in this respect. Secondly, the provision that the tax shall start at 4 per cent, makes no proper allowance for the varying degrees of risk which companies carry. It should be realized that capital will not be attracted to company investment unless some margin is allowed for risk. Then again, many companies have made legal contracts to pay debenture interest at 4 per cent., and many other companies have contracted to pay preference share dividends at 5 per cent., 6 per cent., and even up to 8 per cent. Admittedly provision is made for companies to throw a part of the burden of this taxation on to the preference shareholders, but the companies themselves are obliged to accept the onus to do so. Preference shareholders, like other sections of the community, are facing increases of the cost of living which already amount to 10 per cent. Many of these shareholders bought their shares at a high premium, and, not unnaturally, they may protest against, having to pay part of the tax which is imposed upon companies under the war-time company tax legislation, and litigation may result.

Such a heavy war-time profits tax' is opposed to all sound principles of economics. The evidence submitted to the Joint Committee on Profits indicated that it would be better and sounder, and also more profitable to the Government, to control prices and to oblige companies to distribute their profits, than to impose an unduly heavy war-time profits tax. If companies by the adoption of efficient methods are able to declare reasonable dividends, the Government will be able to skim much more cream off the financial milk than it will be able to skim by penalizing companies in this drastic way. It would be much fairer to obtain revenue through the normal income tax channels than through this channel. One feels disposed to ask whether, by the adoption of this method, the Government will not lose on the roundabouts what it will make on the swings. It has been stated that an additional £9,250,000 will be obtained from the war-time profits tax in a full financial year under the new conditions, and from the increase of the ordinary company tax. In other words, it is proposed to take 44 per cent, of the income of companies in Commonwealth and State taxes. In addition, the Commonwealth is expecting to collect an additional £6,000,000 in income tax from persons in the higher income groups. It will be found, however, that the Government cannot have it both ways. Having killed the goose that lays the golden eggs it cannot count upon an increase in the production of such eggs. The withdrawal of £43,500,000 from company profits by taxation will leave the companies with only £54,500,000, from which must come dividends and also money needed for the expansion of our war industries, and the reserves that will be so important in the difficult period of reconstruction after the war. The Government is expecting to receive a. good deal more revenue from the income tax, but it must not bc forgotten that if all of the proposals of this budget be agreed to, the unfortunate shareholders of companies will be called upon to pay tax in at least six different ways, namely -

State company tax;

State income tax;

Commonwealth company tax;

Commonwealth war-time profits tax;

Commonwealth income tax; and

Land tux.

This last impost of course will fall only upon individual shareholders in any marked way if the companies in which they are interested are large land-holders. In expressing his appreciation of the response made to the recent loan appeals, the Treasurer acknowledged that strong support had been given to the loan by the large financial institutions, the big commercial companies, and also by large cash subscribers. We all are glad that the Government, has secured £34,000,000 of new money for Avar purposes. I congratulate the Prime Minister, the Treasurer, and also the Leader of the Opposition on the strong appeals they made to the public to subscribe to the loan. Yet, it cannot be overlooked that the Government will still require to raise £103,000,000 by voluntary effort, in the next seven months, in order to bridge the gap that, remains between estimated expenditure and revenue. Taxation of the kind that, Ave are now considering will undoubtedly impair the success of voluntary appeals.

In a recent speech the Minister for War Organization of Industry (Mr. Dedman) indicated, if I understood him aright when he was theorizing about Labour economics, that a number of the new sales tax increases had been deliberately designed to fall upon distributors rather than upon consumers. If that is the case, there is likely to be a further reduction of the incomes of distributing companies. Therefore, the Government estimate of the amount it will receive from company taxation may prove to be too optimistic. It is proposed that more than £3,000,000 shall' be obtained from the increase of the sales tax. The wartime profits tax may have serious results in that connexion. Experts on taxation have expressed the fear that this tax may cripple industry and prevent any expansion of our Avar effort. I call to mind that Great Britain has already found that a similar tax had such seriously crippling results on the Avar effort that the tax had to be reduced. In Australia, however. the burden of the tax is being increased. This measure provides for probably the heaviest tax of this description in the world. At least, the tax is much heavier than Hitler considered he could impose upon German industry. One of the worst features of the tax will be its adverse effect upon impecunious people whom the Labour party claims to protect.

I do not desire to be unduly critical of the Minister assisting the Treasurer, but, in his remarks to-day he said that we should pass this bill quickly. He then well t on. to speak about the desirability of freedom of speech. He made a heavy attack on small shareholders; yet, last night, when honorable members on this side of the chamber dared to speak in opposition to the Government's pension proposals, they were strongly condemned. Apparently the rights of pensioners and their, dependants may he debated at tremendous length, but argument in support of the case of small shareholders in companies must be silenced. Our remarks are resented and the Minister assisting the Treasurer thinks it. proper to bowl at us like a hyena. Honorable gentlemen opposite may say what they like in favour of the pensioners, but Ave may not say a word about the plight of small shareholders in companies.

A point I wish to make is that, if the dividends of small shareholders bo cut, in half as the result, of this taxation, such shareholders will suffer far greater hardship than will wealthier shareholders. All of us know of many (poor people who have invested their life's savings in companies from which they derive an income of a few pounds a week. This taxation will impose very great suffering on that class, with the result that the list of pensioners will be enlarged and the financial burden on the State will be increased. I earnestly commend to the Government the claim of these small shareholders, and ask that they he treated comparably with the basic wage-earner. A former government, whose responsibility I did not share, abolished the principle of the dividend rebate. That occurred before ir became known that companies were to be compelled to .carry such a burden of taxation. In Great, Britain, a company shareholder with a small income can obtain a rebate of tax paid on his behalf. I request the Government to permit those whose total income is less than that of the basic wage-earner - say, below £200 a year - to submit claims for rebate of the tax paid on their behalf by companies. I? it should consider that that would be too costly or too generous, would it at least apply the principle in cases where the income has fallen to, say, £100 a year, or to the figure which would make the taxpayer eligible for a pension, which, with the pension, is £87 2s. a. year? Application of the principle would be a perfectly simple matter. The shareholder would lodge with the Taxation Department a rebate claim, stating his total income and the company dividend he had received. The department would estimate the amount of the rebate, and transmit it to the shareholder. That would be a tiny fraction of what is done under the British system. The Government may say that there would be complications, and that too much work would be thrown on the department. That is absolute rubbish. Before the Joint Committee on Profits, the question was raised of the very difficult and complicated notional distribution of undistributed profits by private companies, and the members of the committee were informed that the Taxation Department had not the slightest difficulty in the matter. If my proposal would increase tax receipts in the slightest degree, the department would not raise the least objection to it. The lot of persons on small fixed incomes threatens to become very serious. The cost of living has risen by 10 per cent., and may rise more steeply and rapidly under the policy of this Government. Persons on small fixed incomes have no protectors, such as the Arbitration Court and federal members, to make representations on their behalf, but they have foes, who are ignorant of the Australian company system. They have struggled, been thrifty, and saved during the whole of their working lives, in order to avoid what is now likely to happen, namely, reliance upon private or public charitable relief. The outlook of the British Government in respect of many of its taxation provisions is much wiser and more generous. For example, a married couple with an income of £500 a year, if one partner is 65 years of age, not only get the ordinary rebate of company tax to which I have referred, but in addition one-sixth of the company investment is free from taxation. The Treasurer (Mr. Chifley) has said that, if it were found, after considering the needs of the war, that any of these measures imposes severe injustice, it would be reviewed. I submit for reconsideration the c'ase of the shareholder with a very small income. I also emphasize that this taxation may cripple companies in the highly important postwar period. Evidence placed before the Joint Committee on Profits indicated that, whatever the present or any other Government might do, in the post-war period we may witness the fall of war prices and experience unavoidable difficulties. Australian ' business people are alarmed at the prospect of prices falling after the war. Price control may fail to sustain prices, and thus avoid great difficulties. The crippling of company reserves by undue taxation may prove very dangerous indeed in respect of both monetary requirements for legitimate war-time expenditure and the financial backing that will be needed in the postwar period. If the Government binds itself to further consideration of taxation measures, I hope that it will not overlook depreciation of buildings and plant. Some companies are installing machinery for the production of defence requirements, which will be totally useless for peace-time purposes. They have a claim for depreciation at a more rapid rate than is now allowed. At present, depreciation of war buildings is not allowed unless they are actually a part of the plant. One is sure that the Prime Minister (Mr. Curtin), the Treasurer (Mr.Chifley), and other responsible M inisters, will take a broad and fair view of this matter, and try, first, to preserve the goose for its future golden eggs, and secondly, to iron out some of the anomalies and injustices caused by this legislation. One is not quite so happy regarding the attitude of some other supporters of the Government to the companies affected by this tax. Some people in this country seem to misunderstand the nature and functions of public companies, and fail to realize the huge spread of ownership among hundreds of thousands of shareholders. For instance, the Broken Hill Proprietary Company Limited has 20,000 shareholders. Nor do these people understand that, for the most part, profits and dividends arc comparatively low. Commonwealth statistics show that the 628 public companiesin Australia made an average profit of6.8 per cent. on shareholders' funds whilst for 1939 they made exactly the same amount, neither more nor less. This shows that all the talk about war profits is rubbish. As a matter of fact, four of the six groat groups of companies had Smaller profits in 1940. There are people in Australia who seem to be identical in their mental attitude with pirates and buccaneers such as Trench and Morgan. They think that the big companies are there to be plundered and wrecked. They say, in effect, " There is a fine galleon. Let us attack and rob it, and make the passengers and, crew walk the plank, no matter whether they belong to our own nation, or whether they be rich or poor, or whether the cargo be urgently needed by our nation ". We have had to listen to almost continuous attacks on certain companies in Victoria and South Australia. The honorable member for Dalley (Mr. Rosevear) called South Australia a "wowser" State. It would have been better if he had called South Australia a war-conscious State, and if he had admitted that South Australian companies have obtained war orders because factories there are not so subject to stoppages and strikes. We have reason to fear for the future of these companies, in view of the bitter attack of the honorable member for Watson (Mr. Falstein) on the insurance companies, in particular those great repositories of the people's savings, those co-operative and splendidly managed examples of national thrift.

Mr Falstein - I was not referring to co-operative companies, but the proprietary companies with shareholders.

Dr PRICE (BOOTHBY, SOUTH AUSTRALIA) - The honorable member mentioned the Australian Mutual Provident Society, listening to the honorable member's attack on the insurancecom- panies, I was reminded of the words of Shakespeare -

Asflies to wanton boys, they kill us for their sport.

I recognize that the Government must raise money for war purposes, and that the companies must make their greatest possible contribution, but they should not be asked to make an impossible contribution. Some of the Government's proposals are so sweeping that, unless they be modified, they may lead to disorganization and socialism. I do not make this statement in any spirit of hostility to the Government. The position in the Pacific is far too serious for us to indulge in party tactics. I appreciate that the Government has had to bring in hastily prepared and partially considered legislation, and I ask Ministers to examine our proposed amendments, and the suggestions I have made for relieving the lot of the poor shareholders who suffer under company taxation. We ask the Government to consider the suggestions in the spirit in which they are offered.

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