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Wednesday, 27 May 1942

Mr CURTIN (Fremantle) (Prime Minister) . - This measure is one of a group designed to enable the Commonwealth Government to take command of the taxable capacity of Australia in order to obtain the economic and financial resources required for the war. That is the supreme purpose of the bills. They provide for total mobilization so that we may use everything we have to the best advantage and in the most equitable way. Whatever be the character of the Australian political structure - a structure which consists of a Federal Government and six State governments - the fact is that all these instrumentalities are the agencies of the one people. Our people, as a whole, have to make available the resources needed for the conduct of the war, and, as State electors and Federal electors, they constitute the whole taxpaying community for both forms of government. We must look at this matter not only in the light of immediate requirements but also in the light of the evolution of the federal system. Why did the six colonies find it necessary to set up a central authority - a Commonwealth Parliament and a Commonwealth instrumentality ? Basically, it was because the people of Australia could not be given a guarantee of adequate defence as a people if any one State were charged with the entire responsibility for what defence of the whole might entail within the territory of that State. Therefore we must examine the reasons which lead to that unequivocal gift to this Parliament of absolute authority for the organization of defence. Of all the great men whose names figure in the annals of federation there was not one who, having accepted the idea of federation, did not regard defence as an integral part of the functions of the Commonwealth Parliament. Of course, at that early time there could have been no accurate anticipation of the state of affairs which exists to-day. Not even in the years from 1914 to 1918 did the governments of those days contemplate a war of the kind in which we are now engaged, and in which Australia has actually been attacked, or the kind of defence programme which war has necessitated for this country to-day. In the Great War of 1914-18, Australia's duty was to contribute fighting men to reinforce the armies of our allies, all of whom were engaged in theatres distant from Australia, and in addition, to export as much of our primary products as was possible with the then existing shipping difficulties. Apart from that not one additional provision was made to resist invasion of our own territory. Our expenditure in connexion with this war, and the call-up of men for the fighting services, for the production of munitions and other services, compared with what was done in the war which ended nearly 25 years ago, are so different that they place a totally different obligation upon the people of Australia. Therefore their financial relations with this Government, and also their financial position as taxpayers of the Commonwealth, cannot be contemplated without considering a re-arrangement of their relations with the State governments as such. The facts briefly are that as the progress of the war brings everincreasing menace to the integrity of this country, the Commonwealth Government is called upon to make greater and greater provision to resist the enemy. We have now reached the stage at which the assessment of the effort required for the war cannot he based upon the preservation of existing rights, or the retention for private uses of what may be considered to be the resources that should be left to citizens either to live the life that they have been accustomed to live, or to conduct industry as they have been accustomed to conduct it, or to work in industry as they have been accus tomed to work in it. It may well be that very soon from 750,000 to 1,000,000 of the men of this nation will be directly engaged in the fighting services, or in the production of armament.5 and munitions for the fighting service?. I do not humbug myself or the country. The whole of the money required to pay that enormous aggregation of our physically fit men is being paid to them without their being able to produce what can be regarded as wealth - that is, consumable goods and commodities which can be bought, sold and traded in as a part of the ordinary business of the country. As a matter of fact this vast body of man-power ha.been amputated from the productive resources of this nation, and the whole of the money contributed by the taxpayer* for the prosecution of the war either by taxes, or by loan, and paid to these men and spent by them competitively on a very diminished supply of goods, doe? not equal the amount of money that the Commonwealth Government is expending upon the war. Thus the excess of money in the economic structure to-day over and above what has been provided ,by th

Commonwealth social services, hut has also expanded the scope of such services. This has substantially reduced both the obligations and the expenditure of the State governments. Yet, what does the Commonwealth's plan propose to do? Is it intended to take away from the State governments moneys which hitherto they have regarded as necessary to carry on their functions of government? No! The Commonwealth Government is proposing to pay to the State governments, in compensation, annually the average of the money which they have collected from State income taxes during the last two years, which have been taken as the basis of calculation.

Mr Holt - The problem is not only one of " buying " the States.

Mr CURTIN - The Commonwealth Government is not proposing to " buy " the States.

Mr Holt - The objection of the State Governments to this scheme is that it takes away their ability to discharge their obligations of government.

Mr CURTIN - In what way does it do that? From what sources do the States derive moneys for the discharge of their functions of government? From certain revenue sources, including income tax. What does the Commonwealth Government's plan propose in this regard? It proposes to leave to the State governments all the revenue resources previously available to them with the exception of their resources of income taxation. In this regard the Commonwealth Government proposes that, instead of obliging the State governments to introduce and pass through the State Parliaments income tax assessment bills year by year, it will -give to the State governments an. amount of money that they would have received from State income taxes had such taxes been applied at the same rate in the future as they have been in the last two years, taking into account the taxable capacity of those two years.

Mr HARRISON (WENTWORTH, NEW SOUTH WALES) - The Commonwealth Government has been generous to the State governments.

Mr CURTIN - Quite so. But the Commonwealth Government is doing more than that. It is saying to the State governments that not only shall they be given the amount of money that they would have obtained from State income taxes if State taxes had remained as they were for the last two years, hut that, in addition, the taxable capacity from the State point of view shall be pegged. Why is that fair? For the reason that the increasing taxable capacity of State citizens as citizens of the Commonwealth is entirely . attributable to Commonwealth Government expenditure from taxation and loans or from the provision which the Central Bank has made towards the financial resources of the Commonwealth. Let us look at that aspect of the subject. Trading bank deposits increased during the period September, 1939, to April, 1942, from £116,000,000 to £191,000,000. Commonwealth Bank deposits in the same period increased from £10,000,000 to £19,000,000. The figures of deposits at call in public trading banks exclude the deposits by governments and deposits in the Commonwealth Bank, and exclude, of course, special deposits of the large amounts held by the bank on behalf of commodity boards such as the wool committee, and the like. The Leader of the Opposition (Mi\ Fad den) referred to the increases of deposits in savings banks. The whole financial structure of the Commonwealth reveals that increased financial resources are in the hands of the public. The note issue also bears testimony to that fact, because notes held by the public have increased in value, in the period under review, from £36,000,000 to £79,000,000. The' pumping of that amount of money into the purchasing capacity of the nation inevitably hag provided a rising taxable capacity which has already given to this Government, and will give to it next year, increasing revenues from income tax, because individuals who may have received £180 last year will probably receive £200 next year. In addition, thousands of persons who were not receiving any wages, or who were receiving amounts below the level at which the Income Tax Assessment Act became operative, have now been brought into the field of income taxation. What the Leader of the Opposition said in this connexion, was quite correct. The earning capacity of people, particularly those in receipt of amounts up to £400 a year, is very much larger than it wa3. He argues that there ought to be an increased imposition of tax upon such incomes. I do not accept that. What does the Government's plan first contemplate? It is governed by the obligation of the Commonwealth to use everything predominantly for the purposes of the war, and the obligation of the individual to devote to the war all that he can spare. Surely that means that, having regard to the limited field available to people to expend their money sensibly, those who are on a given income in one part of Australia shall be in the same class as those who are on a similar income in any other part of Australia ! The scheme of the Government has for its predominant purpose not only simplification of the machinery in relation to the return of income and the assessment and payment of tax, with the object of saving labour-.power to both the department and the taxpayers at a time when labour is difficult to obtain, but also the definite assurance that taxpayers in any given range of income shall make the same contribution to the conduct of the war and the maintenance of the nation, and that this Parliament shall have greater freedom in so adjusting the tax schedules that they may be effective. Hitherto, as the Leader of the Opposition has pointed out, the taxes imposed by certain States on low incomes have been, in respect of morale for the conduct of the war, intolerable and oppressive. One of the very objections that I advanced to any increase of the federal tax on incomes below £400 a year was that such 'an increase would make worse an already intolerable position. I cite South Australia and Western Australia as examples. Such a scheme would make utterly unjust what would be a fair rate of tax on a low income in a State where the tax was low, and. would amount to a super imposition on the existing tax in a State where it was already unjust. At 'the other end of the scale, where the rate of tax on the higher range of income left a substantial margin for this Parliament to use, it was found impossible to use th,whole of it because of inequalities in titrates imposed by the various State governments. Therefore, what might be fair for the Commonwealth to do, superimposing its tax upon that of a particular State, would become a monstrous injustice if superimposed upon the tax of another State. Thus this Parliament has for years been faced with the dilemma of having to ensure fairness for the citizen out of the uneven and undulating field of taxation resulting from the decisions of various State governments and parliaments. Whatever practicability there may be of enduring that sort of thing in this Parliament in time of peace, it becomes a source of utter weakness in respect of the economic control that must be exercised in total war. The Commonwealth hoped that the Premiers would accept the principle of uniformity of taxation, and it mould have been quite ready to discuss with them the best means of giving effect to one simple uniform income tax for the people of Australia. They met us with a complete rejection of the principle of uniformity and one taxation law for the whole of Australia. There is only one war in which the people of this country are engaged, and only one nation that can defend them. Such defence cannot be plotted on the basis of a per capita allocation of defence expenditure. Whilst it may be perfectly true that the citizens of Victoria have for years been able to manage their State as they thought it ought to be managed, by maintaining a lower range of taxation than that of other States, yet the fact is that those other States are to-day the military frontiers of the State of Victoria. It has, of course, to be borne in mind that a mere arithmetical conspectus of State taxes does not furnish a real picture of the relationship of a citizen to the nation. The State of Victoria, which complains that it is not being treated as fairly as the State of New South Wales, has, as a matter of fact, been able to manage its affairs economically because it not only has a very large population in a rather well-settled area, but also has been the fortunate inheritor of the system of secondary industry expansion which was laid down in the beginning of this federation, and has been able to take advantage of it.

Mr Holt - Its financial policy has contributed to that.

Mr CURTIN - Its financial policy has coincided with its natural advantages. As a matter of fact the size, scope and character of a State are more the determinants of its financial policy than its financial policy can he the determinant of its productive character. The argument that it is statesmen who formulate economic policy and lay the foundations of a new order might read very well, might even sound very well, but the truth of the matter is that, whether the States have been prudent or imprudent, this Government is called upon to exploit the situation as it now exists, and cannot act as a reconciler of inequalities, whatever advantages or disadvantages a State may have derived from the past. We have to act as a mobilizer of existing resources for the furtherance of, not the development, but the defence and the security of Australia. If that be not accomplished, there can be no plan of development for State governments. I regard it as a little ridiculous to talk about a State needing sovereignty in order to develop its resources, provide for its future, and carry on its industries. After all, insofar as those industries are valuable for the prosecution of the war, the Commonwealth Government has fed them with untold resources and aid. It has spread the scope of industries. A great mass of the expenditure has gone, as I have said, to the provision of what in peace-time would have been employment, but is now the diversion of manpower from ordinary production to wartime production, for the purpose of giving to the fighting forces the munitions and armament they must have. We have to do more, not less, of that. Therefore, we have to draw increasingly upon the resources of the nation. In such circumstances, it seems to be o'bvious that this Parliament should have command over the taxable resources, of the nation, because the Commonwealth Government is responsible for the expenditure of the vast sum of money which is flowing out. We are responsible for the financial and banking structure of the nation. We have to see that the supply of goods keeps pace reasonably well with the supply of money. We have to maintain the economic solvency of the nation even while we wage war. There cannot be any guarantee that this Parliament will be able to perform its duty and discharge its responsibilities when," for its financial needs, it must reap a field which six other governments also have the right to reap, thereby not only restricting the area available to the Commonwealth, hut also confusing and complicating the efforts of the Commonwealth Government to use even that part of the field reserved for it. Company taxation in Australia is, as the Treasurer graphically described it, a maddening maze, and I do not know how any one except a trained accountant can understand it. The Leader of the Opposition said that in Great Britain there is a system of post-war credits, such as he advocates for Australia. I remind him' that in Great Britain post-war credits are based upon a system of uniform taxation ; they are not the means of bringing about uniform taxation. They are simply a device for substituting in part a system of compulsory lending for the existing loan system. As the Leader of the Opposition well knows, the Chancellor of the Exchequer, whose budgetary treatment of the problems arising out of the war has won the admiration of the world, does not have to run about finding out what six other treasurers are going to do before he brings down his own budget. He has the taxing field of the whole of the United Kingdom to work as he will, and has, therefore, been able to deal fairly, scientifically and justly with his problem. No Commonwealth Treasurer since the inception of federation has been in so favorable a position as is the Chancellor of the British Exchequer. We take the view that the existing confusion in Australia has the effect of frustrating the Government and Parliament in taxing for the conduct of the war, and that it is unjust to the taxpayers. If it be argued that under our proposals the State governments will be deprived of the means to perform their functions as governments, then we must consider that argument. During the last two years, the States have been levying and collecting income tax, while their other revenues have expanded, but we propose to peg them at a figure reached by averaging the returns over the last two years. If any State government, for any reason, finds that the amount of revenue which it receives under this arrangement is inadequate to meet its obligations, it may submit its case for examination by a tribunal, which will make a recommendation to this Parliament. For several years now, the financial operations of the three claimant States have been reviewed by the Commonwealth Grants Commission, and every recommendation made by the commission has been accepted by the Government, and given effect by the Parliament.

This issue can, of course, be clouded with a great amount of argument. It can be said that, during the last war, the Commonwealth Parliament brought in for the first time a system of Commonwealth income taxation, and that a guarantee was given that the Commonwealth would not tax heavily, or more than was necessary. It can further be pointed out that, after the war was over, the Commonwealth remained in the income tax field. That is perfectly true, and there was no alternative open to it. That, however, was not a violation of the relations between the Commonwealth and the States. Apparently, the States have some advocates who imagine that the Commonwealth Constitution provides for a contractual relationship between the States, and the Commonwealth which shall remain in perpetuity on its original basis ; in other words, that what took place during the first ten years of federation shall become the basis of an immutable contract. As a matter of fact, the Constitution specifically provides that, until the Commonwealth Parliament otherwise decided, certain things were to be doneThis left the problem of adjustment and development to posterity and to future parliaments, a very sensible thing to do. No fetters were placed on this Parliament other than those which the Constitution itself provides, and the Constitution provides the' means for its own amendment. We do not contemplate amending the Constitution in order to impose a system of uniform taxation throughout Australia. We say to the States : " If you impose income tax you will receive no compensation from us. On the other hand, if you vacate the income tax field, we shall give you the money that you would otherwise have raised for yourselves." I ask the States to accept that arrangement. This Parliament has had to find £515,000,000 so far for the war, and it looks as if another £360,000,000 will have to be found during the next financial year, making a total of £S75,000,000 spent on war, the mo3t unproductive form of expenditure imaginable. It does not make for increased happiness, or for the establishment of national assets. It is the insurance cover which we have had to provide against a situation arising in which such things as State rights, taxable capacity, industrial development, and all those other considerations which we incorporate in our speeches, pro and con, when a particular issue is under discussion, would go by the board.

This is a war measure arising from the necessities of war. In no way other than that provided in this legislation can this Parliament obtain command over the resources of the nation in order to mobilize them for the purpose of the war. It must have the right to declare, without equivocation or hindrance, the rate of contribution which it considers proper that every citizen should make to the nation. That appeals to me as being not only the fundamental policy of financial authority for a parliament charged with the conduct of the war. but also the common sense application of the responsibilities which the Constitution has imposed upon this legislature. If there be one duty which the Commonwealth Parliament cannot escape, it is that of waging the war, or those activities which are requisite to the defence of Australia. I have no grouch .against those who, in the State parliaments, consider that once this principle is adopted, it will remain. I am no astrologer, and I do not know- what history may produce. I look forward, not altogether clearly, but none the les* confidently, to the time when thewar will end and victory will be ours. Whatever be the adjustments that the task of conducting the war will have imposed upon us for that day, I am confident that the people of Australia, with their own freedom preserved and their free, parliaments, will he able to bring to bear upon post-war problems a fair and unfettered judgment. With that conviction, I say to the Parliament and to the country that these measures are vitally requisite for the conduct of the war, and that any other consideration ought not to be taken into account.

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