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Friday, 21 November 1941

Mr SCULLIN (Yarra) .- I desire to remove a misapprehension under which some honorable members are labouring. The reduction of the standard* of profits from 8 per cent to 4 per cent. does not represent the degree of hardship, as compared with existing provisions, that may appear on the surface. I do notsay that the proposed company tax is not heavy; it is a very heavy tax, which only a war could justify, but we must remember that it is war time, and this is part of our war-time legislation. I listened to what tlie honorable .member for Robertson (Mr. Spooner) had to say in regard to limiting the duration of this legislation. That might be desirable, but it is not necessary, because it is always, within the power of Parliament to repeal any law. Moreover., the existence of an automatic provision of .the kind suggested might embarrass the Government after the war. The period of reconstruction after the war may be just as difficult as the war period itself.

The act passed last year provides that there should be levied a graduated tax, or a flat rate -tax of ls. in the £1, which- ever is the greater, on all profits over £5,000. I have here some figures which show how company incomes up to 8 per cent, of capital will be affected by this proposed . legislation-, as compared with how 'they would . be affected under . the present act.

A company. with a capital of £150,000, which earns a profit of £9,000, represent- ing 6 per cent, on its capital, will pay £270 in war-time company tax. Under the existing act, -it would pay £279 in super-tax. A company with a capital of £200,000, which earns a profit of £12,000, or 6. per cent, on its capital, would pay £360- in war-time company tax, as against £456 in super-tax under the present legislation.- If the profit amounted to 7 per cent, on capital, this company would pay £720 in war-time company- tax, but only £574 in super-tax. A company with a capital of £300,000, which earned £18.000 profit, representing 6 per cent, on capital, would pay £540 in war-time company tax, as against £809 in super-tax. A company with a capital of £500,000, which earned £40,000 profit, or 8 per cent, on the capital, would pay £3,000 in war-time company tax, as against £2,103 in super-tax. A. company with a capital of £1,000,000, which earned £80,000 profit, c'r 8 per cent, on capital, would pay £6,000 in war-time company tax, as against £4,455 in super-tax; but if this company earned only 7 per cent., or a total profit of £70,000, it would pay only £3,600. in war-time company tax as compared with £3,86S in super-tax. In that case, of course, the existing law will prevail because, when the super-tax exceeds The war-time company tax, the super-tax is collected. On those figures running up to 8 per cent., there is not a great margin ot hardship. Beyond it, the tax becomes iri ore severe; but that is the purpose of the law. The Government does not contend that companies should be taxed out of existence, because that would kill the goose which lays the golden egg;. We agree that excessive taxation will dry up the reservoir, but there is no indication that this bill will do so, although I agree that the impost is heavy. Last year also it was heavy.

When discussing this tax twelve months ago we thought that 8 per cent. was. a reasonable figure at which to begin, but experience has shown that whereas the wa rr time company tax raised £1,000,000, the super tax returned substantially more than that figure. The- super tax- was an alternative proposal, which was designed to meet criticism' that the war-time company tax did not touch big companies. The Government will not reach big, monopolistic companies on a 6 per cent-.- standard basis because for years they have piled up a considerable capital. Hot all of it is " watered " capital,, but some of - it is. I should not be so unfair' as to "say that the practice of big companies in placing a portion of their substantial profits into reserves and extended capital constitutes "watering"; that occurs only when they write up valuations and issue shares on ' them. Many big companies have created a huge capital over many years. Because the capital has been extended, they show comparatively low percentages of profit,although in actual figures the profits- are huge. . On a 6 per cent, or 8 per cent, basis they would escape the tax; on a 4 per cent, basis their profits can be taxed to some degree. That is why the 4 per cent, basis has- been adopted. Another reason is that a higher rate of tax shall be applied to companies making excessive profits. But as I have shown, in cases where companies are making profits of 7 per cent, and 8 per cent, the wartime company tax, as proposed, does not exceed the . flat rate of super tax which was im'posed last year.

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