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Friday, 21 November 1941

Mr SCULLIN (Yarra) . -I rise to correct some misunderstandings, which were almost equivalent to misrepresentation. The honorable member for Deakin (Mr. Hutchinson) stated that I admitted that the Government would lose revenue by the adoption of this tax.

Mr Hutchinson -In the early stages.

Mr SCULLIN - That was not correct. Under the present law, the war-time company tax or the super tax of1s. in the £1, whichever be the higher, operates. How, then, can we lose?

Mr Hutchinson - Will the right honorable gentleman repeat the figures that he cited earlier?

Mr SCULLIN - Yes, I shall give an illustration. A company with a capital of £300,000 makes a profit of £18,000, equivalent to 6 per cent.Under this legislation, it would be called upon to pay £540; under the super tax it would pay £809. In that event, the Taxation Department would collect, hot the war-time company tax, but the super tax. The honorable member for Robertson (Mr. Spooner) has a considerable knowledge of last year's act. because he was a member of the committee which examined the proposals and played a valuable and important part in thediscussions. In my opinion, however, he missed one point when making his speech. Until the figure of 7 per cent, or8 per cent. is reached, the tax imposed on a company does not alter. We derive the revenue from companies which return more than8 per cent. I do not agree with the honorable member for Robertson that 12 per cent. and 14 per cent. is a normal profit.

Mr Lazzarini - Particularly in war time.

Mr SCULLIN - It is abormal and excessive. In normal times, a profit of 8 per cent. is very comfortable; but in war time I regard it as being high.

Mr Hutchinson - We suggest the figure of 6 per cent.

Mr SCULLIN - I remind the honorable member that a company which makes a profit of 6 per cent. will pay no more tax than it did last year. That is the point. But by beginning at 4 per cent., we impose a. higher percentage of tax on the higher ranges of profit.

Mr.Hutchinson. - Could we alter the graduation?

Mr SCULLIN - The honorable member talks continually on the assumption that the company which makes a profit of 4 per cent. or 5 per cent. will be hit hard by the bill. I emphasize that it will not pay one penny more than it did previously. All the illustrations which I have given show that on profits up to 6 per cent., 7 per cent. and in some cases 8 per cent., the tax will not increase.

Under this bill a company whose profit does not exceed 7 per cent. or 8 per cent. will pay no additional tax. But companies with profits exceeding 8 per cent. will pay more than they have paid under the existing legislation.

Mr Spooner - Does the right honorable member remember saying that the object was to catch large companies which escaped last year?

Mr SCULLIN - I shall deal with that matter in a. moment. I want the honorable member for Deakin to understand the position. I have not admitted any reduction of tax; I said that there is no increase up to a certain stage. Beyond that figure, there will be an increase. If the amendment be carried, the Government will lose £2,250,000 from the wartime company tax. That leeway will be partly offset by additional revenue from the super tax, but the net loss will total £1,500,000. It is true, as the honorable member for Lilley (Mr. Jolly) stated, that if the figure be not reduced to 4 per cent., the Treasury will obtain increased revenue from the super tax, but will obtain much less from the war-time company tax.

Mr Jolly - Will the right honorable gentleman say that, in arriving at the figure of £1,500,000, he has taken into consideration the increase of tax upon individuals who receive dividends?

Mr SCULLIN - No; this deals only with companies.

Mr Jolly - If the Government leaves more money with the company, the shareholders will receive higher dividends, and will pay increased income tax.

Mr SCULLIN - I concede that the more we take from the company the less there will be in dividends; but that is not the matter now under discussion. The point which the honorable member was making when I entered the chamber was that we would largely make up the difference by obtaining higher returns from the super tax. Whilst the loss would certainly not be so great as the gross figure, it would amount to £1,500,000.

The figures which I cited in my second-reading speech are interesting and convincing. I shall take another illustration. A company with a capital of £500,000 makes a profit of £40,000, equivalent to a profit of S per cent. Under the war-time company tax, it will pay £3,000; under the super tax, it would have paid last year £2,103. The difference is £S97. Is that an undue increase in war-time, considering the enormous expansion of our war expenditure?

The honorable member for Robertson stated that I said that we made a net to catch two or three big monopolistic companies, but in doing so, we should injure small companies with small profits. That is not the purpose of tlie legislation. I said, in passing, that everybody was disappointed with the result of the tax imposed last year. Only £1,000,000 was collected from the wartime company tax, which was based upon excessive profits. The reason is that we set the standard at too high afigure. I said at the time, and I repeat now, that I do not regard S per cent, as an unreasonable profit in normal times; but in war-time, it is more than a company should receive. Ry making 8 per cent, the starting point, we lost considerable .revenue. We did not impose war-time company tax on profits not exceeding 8 .per cent. We made the starting point so high that before we received tax of ls. in the £1, a company had to earn a profit of 12 per cent. That was not the proper way in which to get the money. The most effective method is to start at 4 per cent. But that does not mean that we shall increase the tax on companies which are making profits between 4 per cent, and 8 per cent. In point of fact, we do not. Last year, the flat rate of ls. in the £1 which was imposed on all companies, after a deduction of £5,000 had been allowed, represented a tax as high as, and in some cases higher than, the tax which we propose to on companies with profits up to 7 per cent, and 8 per cent. But we shall not lose revenue thereby, because the higher of the two taxes will operate.

On big companies, the rate is not too low. Even if some small companies be caught in the net, they must show a profit of 8 per cent, and more before the bill will affect them. Last year, those small' companies were subject to super tax. Even if they made only a very small profit, so long as it exceeded £5,000, they were subject to the tax. Regarding the application of the super tax, the deduction of £5,000 will still apply, so that small companies with a profit exceeding £5,000 will pay no more this year than they paid last year unless their profits exceed S per cent. The only point is that the Government has now fixed a lower standard. When more than a fair rate of profit is reached, higher rates of tax will apply. Incidentally, it is not 6 per cent, on the whole of the profit, but only 6 per cent, on the . amount by which the returns exceeds 4 per cent.; whereas the super tax is 5 per cent, on the whole of the profit exceeding £5,000. In those circumstances, I see no justification for complaint.

Where the aggregation of Federal and State taxes on any company, private or public, exceeds 20s. in the £1, the ceiling rate in all cases will be 18s. in the £1. The Government does not suggest that the tax is light. I agree that it is heavy, but it is required for the purpose of assisting to finance the war. The other taxation to which the honorable member for Robertson referred, increases the flat rate from 2s. to 3s., and that is a substantial rise. I understand that the New South Wales company tax has not. in actual fact, been increased although the rate appears to have risen from 2s. to 2s. 6d. in the £1. That is offset by the repeal of tlie unemployment relief .tax. This legislation, increases the tax on companies that are showing a comparatively high rate of profit.

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