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Friday, 21 November 1941

Mr SPOONER (Robertson) .- The right honorable member for Yarra (Mr. Scullin) purported to show that, in regard to certain companies andincomes, the effect of reducing the base rate from 8 per cent. to 4 per cent. would be that those companies would actually pay less tax next year than they did this year, whilst in the ease of other companies, comparatively little more tax would be paid. The right honorable member's argument was sound enough as it applied to companies which make only a low rateof profit. In other words, companies which make little profit pay little in taxes, but the cases cited do not show the general effect of this proposal upon company taxation. Once the rate of profit passes 7 per cent. the return from increased war-time tax begins rapidly to exceed what the return would be from the super tax.

Mr Scullin - I said that.

Mr SPOONER - Most of those companies which are the backbone of Australian industry are making profits considerably greater than8 per cent. on their capital. Indeed, they must do so if they are to provide for taxation and dividends, and establish reserves. If the nation's war effort were dependent on companies which earnedonly 6, 7 or8 per cent., we should not be able to get very far.

Mr Falstein - Even on watered stock ?

Mr SPOONER -I am referring to real capital. When the base rate is reduced from8 per cent . to 4 per cent., a greatly increased obligation is imposed upon the average company. I should like theright honorable member for Yarra to cite figures to show the increased liability of companies under the war-time company tax, bearing in mind the flat rate tax imposed in anotherCommonwealthmeasure, and also the flat rate tax in force under State legislation in New South Wales. Many companies have very heavy obligations in the shape of overdrafts andmortgages, and they must be met, in addition to the provision of finance for ordinary operations. I believe that the Government is doing wrong in reducing the base rate to 4 per cent. It should have been satisfied, for this year at any rate, to reduce it to 6 per cent., and it could be reviewed later in the light of experience. The right honorable gentleman developed a case to prove that certain large companies would be subject to very little taxation if the base rate were left at8 per cent., because their earnings were not high in relation to capital. He said that, unless the rate was reduced to 4 per cent., they would practically escape the tax. I cannot say whether that is true or not, but' if it is, the right honorable gentleman is providing a net which, while it may catch some large companies, will at the same time, entangle a great many other companies which should be encouraged. I have observed this tendency in a good deal of recent legislation. In order to get at one man or company, we bring in a measure that does irreparable harm to a. great many others. I agree, however, that companies and individuals must be prepared to pay. This is no time to talk of reducing taxation, or of evading the maximum payment. Let us recollect the revenue that is necessary, but let us do it without creating anomalies. The honorable member for Lilley said that the Government would lose £2,225,000 if, instead of fixing the base rate at 4 per cent., we fixed it at 6 per cent., but, on the other hand, the Treasurer would collect an increased amount from the flat rate of1s. in the £1, and he expressed the opinion that, actually, the revenue would not suffer very much. I have not gone into the figures, but I am inclined to think that he is not far wrong. The very illustrations furnished by- the right honorable member for Yarra support the contention. When the rate of profit does not exceed6 or 7 per cent., the return under either system of taxation is much the same, but when the base rate is reduced below 8 per cent., a greatly increased liability is imposed on many companies whose profits are normal at 12 per cent. or 14 per cent., out of which they must provide for taxation, dividends and reserves. I urge the Government, even at this stage, to reconsider the matter in the light of what has been said.

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