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Wednesday, 17 December 1941

Mr SPOONER (Robertson) .-- When the Income Tax Assessment Bill was being considered by Parliament a few weeks ago, attention was drawn to the fact that at an early date the need would arise for a complete overhaul of our system of taxation. This had been brought about by continual amendments, some of them made under the strain of war-time conditions, that have added to the complexities of an already complicated taxation system. The proposal now before the committee is no exception. As the months pass, the Treasurer (Mr. Chifley) will find that those who advised him in the preparation of this measure did not give to its ultimate effects the consideration that it requires. In my opinion, honorable members must vote for the proposal because of the necessity to find thi' money for war needs. The Treasurer told the committee last night that he was introducing this tax in this form because only something simple could be immediately brought into operation to meet, our urgent needs. He went on to say -

Wo shall have time during the next few months to consider any modifications which may ho desirable to fit it more harmoniously into our general financial structure, and make provision accordingly for 1042-43.

That, is the redeeming part of his statement, because those who advised him on thismeasure cannot have fully taken into account its inevitable repercussions. I donot mean repercussions in the sense of taxation. I do not complainof taxation,because whatever amount of money the Treasurerneeds he must have. But how to raise that money isanother matter. I do not refer to the quantum of tax, but I wonder whether those who have advised the Treasurer have taken into account the fact that this measure, like some of its predecessors, will have the automatic effect of reducingother revenues. I explain what I mean by saying that this tax will affect the personal rates of tax that will be paid by individuals. It commences at lower rates of income , and gradually rises until at £300 it becomes 13d. inthe £1. Persons earning more than £300 a year will pay 1s. in the£1 overand above the ordinary income tax.

Mr Scullin - Not necessarily. The honorable member forgetsthe deduction for federal income tax.

Mr SPOONER - Yes. the right honorable member is right. I used the expression "12d. in the £1" because it is the expression used in the bill. The tax will be 1s. in the £1 adjusted by federal income tax. That will affect the revenue which the Government proposes to collect from the rax on the undistributed profits of companies, at all events, private companies which represent a considerable part of the tax-paying system. Private companies pay on their undistributed profits tax at the rate that would be paid by the individual. There is a ceiling rate which the Government was obliged to introduce in the last sessional period because it had to remove the inevitable anomalies which arose under the legislation. The effect of the ceiling rate will be that many companies will not pay the additional tax upon the undistributed profits because they have already come on the ceiling rate. The additional 1s. in the £1 adjusted by the income tax will bring nothing to the Government. We are leading one by one into these interminable complications. I do not rise to-day to be critical of the Government. I say that earnestly because it is not the time to be critical, although it is the time to be constructive. As I said earlier, the statement by the Treasurer that this tax will be reviewed before Parliament again met was the redeeming part of his speech. Apart from the fact that he has to raise an additional £25,000,000 of revenue, which makes this bill and a companytax necessary, he recognizes the necessity early : next yearcompletely tooverhaul the whole business of taxation,otherwise he will find asthe year 1942-43 proceeds that by introducing new taxingmeasureshe has partly defeated the purpose of the measures which he had previously introduced for the raising of revenue from companies.We have reached the positionwherethe taxon the individual and the tax on the companyare so tied together that theycannot be separated. Byraising £20,000,000 from one tax he will lose a considerable part of that sum which he would otherwise have collected by means of another tax. I drew attention to this fact whenas a member supporting the MenziesGovernment I was sitting exactly where the right honorablemember for Yarra (Mr. Scullin) sits. When that Government introduced the pay-roll tax Isupported it, but I made itclear that I did not like the tax in principle. It was necessary for me to support that tax in order to ensure that a system ofchild endowment would be introduced in Australia. I, however, directed attention to the fact that when the Government had raised £9,000,000 by means of the payroll tax, itwould introduce another deduction from the gross income of the taxpayer. In other words, a company paying £500 a year in pay-roll tax would deduct that payment from its income next year, and consequently the general income tax it would pay would be correspondingly less.

Mr Scullin - That would have happened had the basic wage been increased.

Mr SPOONER - I am not assuming that the pay-roll tax and the basic wage have anything in common.

Mr Chifley - They were very much allied.

Mr SPOONER - I had no reason to believe that theyhad anything to do with each other. I cannot assume that there would have been an increase of the basic wage but for the imposition of the pay-roll tax. I must assume that they have nothing to do with each other. I only know that the pay-roll tax is a part of the system of taxation. Hundreds of taxpayers would never have been affected by the increase of the basic wage even if it had occurred, so that my remarks are correct about them, even though the right honorable member for Yarra may be right in what he says. The fact remains that the Government is losing general income tax because of the new deduction for pay-roll tax. In the last sessional period I did not direct attention to this because it would have added criticism to the many other necessary criticisms of a constructive nature. When the Government increased the land tax I was not a party to objection to that increase, but as the Government increased the land tax so did it increase the deductions which may be made for land tax in the income tax returns of the same taxpayers. Most of the people who pay the increased land tax are those who pay the maximum rate of income tax of 16s. 8d. in the £1. The increased land tax applied only to the unimproved values of £20,000 plus £5,000 for statutory allowance, making' an unimproved capital value of £25,000. It is reasonable to assume that the great majority who would pay increased land tax will pay income tax at the rate of 16s. 8d. in the £1. Therefore, the Government imposed an addition to the land tax of £1 and in many cases lost 16s. Sd. which it would have collected through the income tax system.

My object to-day is to impress upon the Treasurer the state of terrific complication which we have reached and the need for complete revision and overhaul of the whole system if the revenue is not to be seriously affected by the very measures which are being introduced at present. The Government finds when approximately half the financial year has passed that it must supplement the revenues for which, it budgetted in. November. If my recollection is correct, the Treasurer said when he brought down the budget that it might be necessary early in the new year to revise taxation. He is only a few weeks early, but important happenings have occurred since November. He has chosen to introduce a measure which conforms very closely to the unemployment relief taxes that were in operation in the States during the depression period. It is quite evident that this measure follows the principles which were adopted in the State emergency measures for the collection of taxes. Those State unemployment taxing systems were very successful. I am sure that the Treasurer hears me say that with great satisfaction. They were very successful as revenue raisers. They were not successful insofar as they did not cease to exist when the need for their application no longer existed when the special depression and unemployment conditions in respect of which they had been imposed had passed. The taxes continued and became a permanent part of the taxation system. For that reason, I should have been glad if the Treasurer had introduced into this bill a provision to the effect that it would expire automatically a certain time after the wa.r ended, in the same way as he graciously agreed to set a time limit to the war-time company tax after the bill proposing its imposition had returned from the Senate. If the tax be a wartime tax, when the war is finished the country may reasonably be expected to raise its revenue by ordinary methods of taxation and abandon the special measures introduced for the purpose of war.

I direct the attention of the committee to the fact that there are three essential features in respect of which this bill differs from the general income tax law. This is not an increase of the ordinary income tax. Honorable members must not allow themselves to be confused into imagining that it increases the ordinary income tax. This is a special tax computed in a different way. There are three essential differences in the method of computation. First, it commences from the lower ranges of income. Secondly, it does not grant the statutory and concessional deductions allowed by the general income tax law. Thirdly, it grants a deduction for dependants by way of a rebate of tax instead of a deduction from gross income. The Treasurer is right on the last point, because every one whatever his income, will receive ls. a week or £2 12s. a year for each, dependant.

Mr Scullin - It works out about the same.

M,r. SPOONER.- No. There will be substantial differences. The Treasurer made that clear last night. A deduction of £50 for a dependant would mean to a man on a low income a less concession than it would mean to the man on a high income.

Mr Scullin - That would be so if it were a graduated tax, but this is a tax on a flat rate.

Mr SPOONER - It is a graduated tax. It graduates from 6d. on the base income to1s. on incomes of more than £300 per annum.

Mr Scullin - But the graduations do not rise as high as 16s.8d. in the £1.

Mr SPOONER - The man on £8 a week would receive twice the allowance that would be received by the man on £8 a week if the allowance for dependants were a deduction from gross income. That is an important consideration. The Treasurer,I believe, is right in adopting the flat rate principle for this purpose. I had endeavoured to make it clear that there are these basic differences between the war-time tax now introduced and the general income rax. This is a special tax. It is a tax with principles and a structure of its own. It is a tax for the financing ofthe war. The Treasurer may find it necessary as time passes to increase the rates of tax provided in this bill. Of course, that is a dangerous prophesy to make, but it is evident that this measure, operating on a system that relates peculiarly to wartime conditions and commencing with a very low rate of tax, may lend itself to future adjustment.For this reason it is all the more urgent that the tax be reviewed during the early part of next year, with a view to welding it into the general income tax system and removing the complications which will make administration unwieldy. Does the Treasurer realize what extra administrative work will be thrown on to the Taxation Department by this measure? The tax will involve the computation of new assessments by entirely new means, and this work will require an army of expert clerks, because juniors and beginners cannot be employed on such a task. The Taxation Department has not sufficient expert employees to spare for this new job. Already it m ust be very much behind with its work; this, of course, means that the Government is losing revenue. I ask the Trea surer to ascertain, for example, how many companies have not yet been taxed upon their undistributed profits in respect of the year 1939-40. The amount of unassessed tax, which should be in the hands of the Treasury at the present time, must be very large. I know of a number of companies which have not yet been taxed on their undistributed profits for that year. I know why these taxes are outstanding: The taxing system is so complicated that, before the Commissioner can assess the tax on a private company, he must wait until he can ascertain the personal rate attributable to the shareholders. [Extension of time granted.] The Taxation Department is obviously at a disadvantage, being understaffed and unable to cope with this work, which involves hundreds of thousands of pounds of Commonwealth revenue. This measure will throw on to its shoulders another complicated tax system requiring the employment of more expert officers. I doubt the wisdom of the proposal. However, I am not prepared to challenge the basic principle of the bill. The Treasurer must raise an additional £20,000,000. This is a means towards that end. I urge the honorable gentleman not to neglect this problem in the rush of other matters during the early part of next year. After a financial period has been commenced, it is easy to ignore the operation of the taxation system until a new period is imminent. During the coming year, the Treasurer will be almost overwhelmed by many complications, and those caused by this measure will not be the least of them.

I suppose that it would be fair and reasonable for the Opposition to say to the Government, with regard to this bill, "We told you so ; we told you that it would be necessary to impose some extra rate of tax upon lower incomes, partly for the purpose of raising revenue and partly for the purpose of reducing the amount of spending power in the hands of the public - a spending power which is causing an undue increase of the manufacture of non-essential goods." In this regard, the position is no different now from what it was in October last. However, I do not propose to say this to the Government. Instead, I congratulate it upon what it is doing. I believe that it is doing ohe proper thing and that it has realized that it must, for the protection of the nation's finances, impose some extra tax upon the lower rates of income. It deserves to be congratulated, therefore, upon having the courage to change its opinion. I believe that it will be necessary to impose even higher rates of tax on lower incomes in the future, not because anybody wants people to pay more tax, but because, having regard to the huge amount of public income and the cumulative effect of this increased spending power on the needs of the war industries, the finances of the nation must be stabilized.

I repeat that the Government is adding one more serious complication to the taxation system. "Unless this matter be taken in hand in the early part of next year, it may be a severe handicap to the Government in the conduct of the war. The financial problems of the Government in the year 1942-43 will bc considerably greater than they are now. In the early part of next year the Government will have to clear its decks and prepare its plans for the future. If this war demands anything, it demands an assurance that whatever funds the country needs must be obtained by some means. War finance is entirely different from any other form of finance. In peace time, developmental works arc carried out according to the money that is available. In war time, the Government has to decide what work must be done, and then take steps to secure the requisite revenue. The Government must straighten out our taxation system and bring this and other measures into a general scheme that conforms with sounder principles of revenueraising.

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