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Tuesday, 16 December 1941

Mr CHIFLEY (Macquarie) (Trea surer) . - I move -

1.   That a war tax be levied and paid on the war tax income of every person (other than a company) whose war tax income as ascertained in accordance with PartIIIB. of the Income Tax Assessment Act 1936-1941 exceeds One hundred and fifty-six pounds.

2.   That the rates of war tax be as follows: -


3.   Notwithstanding anything contained in the last preceding paragraph of this Resolution, the war tax payable by any person, after deducting the rebates of tax allowable under Pa rt IIIB. of the Income Tax Assessment Act 1936-1941, shall not exceed one-half of the amount by which the war tax income of that person exceeds One hundred and fifty-six pounds.

4.   Notwithstanding anything contained in the preceding paragraphs of this Resolution, where the amount of war tax which a person would, apart from this paragraph, be liable to pay is less than Ten shillings, the war tax payableby that person shall be Ten shillings.

5.   That war tax in accordance with" the preceding paragraphs of this Resolution be levied and paid for the financial year which commenced on the first day of July, One thousand nine hundred and forty-one and all subsequent financial years:

Provided that the rates of war tax imposed for the financial year which commenced on the first day of July, One thousand nine hundred and forty-one shall be one-half of the rates declared in this Resolution.

The purpose of this resolution is a special war tax on incomes additional to the taxes already imposed for the present year. In the present grave position war expenditure has already increased beyond the budget estimate and will increase still further. The budget estimate was £221,000,000. On that basis borrowings were estimated at £139,000,000, of which about £39,000,000 has already been raised, leaving £100,000,000 still to be borrowed. The previous Government stated that its estimate of war expenditure was on the conservative side. With the acceleration of expenditure in the present position, the increased commitments which have been incurred in the last few weeks, and with further commitments which are inevitable, we are faced with a very substantial increase of war expenditure over the budget estimate.

On the revenue side there may be some loss of customs revenue because of import and shipping restrictions. We expect to realize other revenue items. It is not in the general interest to disclose details of additional war expenditure at this stage. The indications are that with the increase of expenditure and with allowances for possible loss of revenue, there will be between £40,000,000 and £50,000,000 more finance required than was estimated in the budget. In these circumstances, the Government has brought down two supplementary taxation measures, namely: -

(1)   Special war tax on incomes, which is the subject of this resolution, and

(2)   Increased company tax for which a further resolution will be brought down.

The effect of these two proposals will be to impose additional taxation at the annual rate of about £24,000,000. As half of the year has expired the estimated additional collections for the present year are put down at £12,000,000.

I shall now explain the details of the proposed war tax. It will fall on all income and earnings over £3 a week. It will begin to be paid from the 1st January out of current wages and salaries. It will be assessed on the amount of income remaining after current federal income tax has been deducted. This income may be called war tax income. The tax will be assessed upon income of the year ended the 30th June, 1941, for which income returns are available. Deduction made from salaries and wages will be applied in satisfaction of the tax assessed, and any necessary adjustments made in the same manner as for income tax. The urgency will be met by immediate collections at the source. Equity will be preserved by the annual assessment on income of the full year. The income to be assessed may be described as actual income without the statutory exemption or deductions of a concessional nature. The most important concessional deductions, which will be disallowed arc those for dependants, medical and funeral expenses, life assurance and superannuation, and State income tax. From this income federal income tax assessed and payable will be deducted to give war-tax income. In all other respects income which is subject to ordinary income tax will be subject to the war tax.

There will be no tax on war tax income under £156 - say £3 a week. Above £156, the tax will be 6d. in the £1, increasing gradually to1s. in the £1 after £300. There will be a flat1s. in the £1 on war tax incomes above £300. There will be no allowance for dependants in assessing the tax, but there will be a rebate of tax of1s. a week on account of a wife and each dependent child under sixteen years of age. The allowance is made in this way so that the relief given on account of a dependant will he the same for a man on £4 a week as for a man on £10 a week. If a deduction from income was given, this would have the effect of giving the £4 a week man only about half the relief given to the other. The rebate of tax is given for all dependent children. It is fixed so that for a married man with two dependent children on the basic wage, the rebate would approximately be equal to the tax, so that this family would not be called on for any contribution. The effect of the rebate on the net payments to be made by families of different size at different income levels is shown in Table II. which will be distributed to honorable members. It may be noted that a single basic wage-earner would pay about 3s. a week; married, 2s. a week; with one child1s. a week, and with two children nothing. With a wife and two children, a man on £6 a week would pay nearly 3s. a week in tax.

The yield of the war tax in a full year would be £20,500,000. There is, however, only half of this financial year left. The basis of the war tax on weekly earnings is payment at the rate of1s. in the £1, or something less. In half a year it will be possible to collect only half of the amount which the rate of weekly payments would give for a full year. The tax then as imposed for this financial year must provide for only half of the full annual payments. The tax assessed will then be only half of the £20,500,000 which I have given as the yield for a full year. Actual collections within the financial year will be somewhat less than half, or, say, £8,000,000. The additional work thrown on the Taxation Department will be so great that it is not possible now accurately to forecast the amount that can be collected within the financial year. The war tax takes this particular form because only something simple could be immediately brought into operation to meet our urgent need. We shall have time during the next few months to consider any modifications which may be desirable to fit it more harmoniously into our general financial structure, and make provision accordingly for 1942-43. The rates bill will be brought down later.

Progress reported.

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