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Thursday, 28 May 1942

Mr ROSEVEAR (Dalley) .- The bill which is now under consideration is one of a series of measures that will introduce the much-heralded uniform income tax, and I whole-heartedly support the legislation. Some honorable members profess to believe that this measure is a step towards unification. I wish that I could believe it. If it were true, I should welcome the bill with even greater enthusiasm than I do at this moment. The critics of the measure have declared that it is a step in the assumption by the Commonwealth of the whole of the functions of the States, and they have pointed out that from time to time the States have been prepared to concede certain powers to the Commonwealth. On a number of occasions, the people have not been generous when they have been asked to approve an alteration of the Constitution for the purpose of increasing the powers of this Parliament. With all its faults, the majority of the people still appear to favour the Constitution in its present form. If we require evidence of that we have only to recall 'he fate of the most recent referendum in which the Commonwealth sought to obtain control of marketing and aviation in Australia. By an overwhelming majority the people defeated the proposal.

Some honorable members have stated that the Commonwealth's gradual assumption of responsibility for social services is further evidence of its usurp.tion of the powers of the States. I remind them that although responsible government was granted in New South W ales in 1856, it was not until the advent of the Lang Government 61 years later that the thought of widows' pensions entered the minds of State legislators. Two years later, New South Wales introduced a child endowment scheme, and that was the only State which had these social benefits. It is a compliment to the gentleman who was the Premier of New South Wales at that time, and who was .responsible for the introduction of that beneficial social legislation, that the last Commonwealth Government and the present Administration have followed somewhat tardily his example by making those social benefits Commonwealthwide. In so doing the Commonwealth has usurped the functions of only one State, because the other five States have not granted those social benefits to their people. A vast residue of power still resides in the State Governments, and, therefore, I discount the claim that this temporary legislation represents a substantial step towards unification. The Government has promised that the legislation will be limited to the period of the war and one year thereafter. It can be more truthfully said that these bills are the outward manifestation of the fact that the Treasurer (Mr. Chifley) desperately requires money for the conduct of the war, and I predict, with more certainty than the right honorable member for Kooyong (Mr. Menzies) spoke on the constitutionality of the measure, that the Treasurer next year will be much harder pressed than he is now to obtain adequate finance for the war effort. The Government cannot destroy private industry and wealth-production on the grounds of nonessentiality without affecting the income pool from which taxes are drawn. The more the Government diverts industries from pursuits of wealth production to war production, the more it will reduce the pool on which the Treasurer must draw. The present policy of diverting wealth-producing industries for the purpose of war production will substantially increase the difficulties of the Treasurer next year.

The principal justification of this legislation is the needs of war finance. The question that arises is whether the constitutional bar, to which the right honorable member for Kooyong referred, will overcome the intention of the Treasurer to pursue a more vigorous war effort, so far as governmental finance can achieve it. The matter will be decided by the High Court, and it is difficult to foretell - even the right honorable member for Kooyong refrained from being dogmatic on the subject - whether the war situation will influence Their Honours to give a judgment different from that which they may pronounce in peace-time. If the States vacate the field of income taxation, the Commonwealth will compensate them by paying to them the averageof the sum of their receipts from income tax during the last two financial years. If the States do not co-operate, they will not receive any compensation, and will be forced to depend upon their own resources. The Commonwealth Government is making sure that it will have first call on the national resources, because the first charge upon the pocket of the taxpayer will be for purposes of Commonwealth income tax. Despite that provision, some honorable members have declared that the scheme is not compulsory. I remind them that the high rate of the proposed Commonwealth income tax will make it impossible for the States to superimpose an income tax. The position reminds me of the words of the English comedian, Stanley Holloway, who, when speaking of Magna Charta, said -

It was through that there Magna Charta,

Which was signed by the barons of old.

That in England to-day you can do what you like

So long as you do what you're told.

That element appears to be the basis of this legislation. The States can do as they like so long as they do what they are told. The right honorable member for Kooyong says that these bills will prohibit the States from exercising powers that are confirmed in the Commonwealth Constitution and, of course, government without the power to tax is not government at all. So this legal tangle willbe left for the legal fraternity to unravel. It seems that, ultimately, the High Court, without any political responsibilities, or any responsibilities for the conduit of the war, will decide whether the Commonwealth Treasurer will have the right to exploit to the utmost possibilities the field of income tax in Australia. I am prepared to concede that there are arguments for and against the proposition, although I am whole-heartedly in favour of the legislation. Some of the points in favourare that as the result of this legislation and without any great interference with the ranges of income or rates of tax the Commonwealth will have, I understand, for war purposes an extra £15,000,000 a year. Secondly, the work of the Commonwealth Taxation Department will be nearly halved, and thus man-power will be saved. Moreover, in these times when savings are necessary, at least £250,000 will be saved in the cost of tax assessments and collection. The work involved in companies in preparation of income tax returns will be halved. That will mean a further saving of man-power. The scheme will also ensureto the States revenue equal to the average revenue for the two financial years 1939-40 and 1940-41 when they enjoyed revenues inflated almost entirely by Commonwealth war expenditure. I think that that is the strongest argument that the Commonwealth has in exacting this uniform tax. It will particularly benefit New South Wales because, until last year, it had to finance child endowment and until this year widows' pensions. That State will be in an extraordinarily sound position. Not only will it get from the Commonwealth taxation pool an amount equal to the average of its revenues in two inflated war years, but also, at the same time, it willbe relieved of the financial responsibility of child endowment and widows' pensions. That there are some States which will benefit more than others I am prepared to admit. I join issue with the right honorable member for Yarra (Mr. Scullin), who said that particularly from honorable members representing New South Wales Constituencies there had emanated a spirit of parochialism, because they had criticized the distribution among the States of governmental expenditure on war. I was for twelve months a member of the Commonwealth Man-power and Resources Survey Committee and, during that time, I saw the munitions programme in operation throughout Australia. I saw not only the magnitude of the work in all States but also the nature of the work. As I shall proceed to point out, the nature of war expenditure is more important to the finances of the States and to the industries in the States now and after the war than the magnitude of the amount of money expended. Although tha| would seem to be rather inverted logic, I hope to be able to prove it. The States will benefit hoth directly and indirectly from this legislation. I make bold to say that Victoria has had a lion's share of the war expenditure, and that has been owing, not to the fact that it was more eminently able to do the work than, for instance, New South Wales, not because there was a greater development in that State in secondary industries than in New South Wales - I compare the two States because they are the most nearly similar in industrial respects - but because of the whole of the organization and influence of the war effort was centred in Melbourne. That was why the expansion was greater and earlier there than in any other State. I have said that it is not so much the volume as the nature of war work done that benefits a State. Both in volume and nature of work Victoria has had the lion's share of the war expenditure, directly and indirectly. The great bulk of the development which has taken place as the result of war expenditure in Victoria will have a permanent post-war value. 1 emphasize that point. That is why I say that it depends not on the volume, but on the nature of the work. Another point I emphasize is this: It is important to look at the war expenditure in the

States from the point of view of the effect on State taxation income and we find that in Victoria the greatest war development has taken place in private enterprise; so, not only have wages and the volume of wages increased, bringing more workers into the field of taxation, but also those controlling private industries that have had the vast majority of war development in that State, have increased taxable incomes. In Victoria in the two years in question - I join issue with the Premier of Victoria on this point - there was enormous development of private industry. That is taxable industry. Furthermore, there was a vast expansion of employment, and unemployment was eliminated. That meant more taxable income among the workers and less responsibility for the maintenance of unemployed on the State. So I say that Victoria benefits from war expenditure to a greater degree than any other State and has less to complain of in this uniform taxing scheme than any other State. The Premier, Mr. Dunstan, ascribed the differences between the taxation in the various States as being due to the fact that Victoria had been prudently governed and, therefore, had low taxation, whilst in the other States there had been extravagance. New South Wales has far greater social services for the workers than has . Victoria, Its widows' pensions, child endowment and child welfare payments are in excess of those of Victoria. We have those things ; yet the Victorian Premier says we have high taxation because we are extravagant, and that Victoria has low taxation because of prudent government, The fact that this Parliament has during the last two years passed acts conferring upon the whole of Australia child endowment and widows' pensions is the best assurance that this Parliament does not endorse the view that they are evidence of governmental extravagance. I believe, therefore, that the argument of Mr. Dunstan that the low taxes in Victoria are due to prudent government and the high taxes in New South Wales are due to extravagant government is not generally accepted by this House. I have said that in varying ways the States will benefit as the result of Commonwealth war expenditure. Already in New South

Wales there has been a vast expansion of private business connected with the war effort. Consequently, in that State the field for State taxation has also been vastly expanded. Of course, as the Government's war programme develops, it will be accompanied in that State by an expansion of State-owned, non-taxable factories. Whilst those industries will not contribute taxes directly to the Commonwealth, they will provide a new field for Commonwealth revenue in that the employees engaged in such industries will be taxed. Next to Victoria, New South Wales has benefited to the greatest degree through the development of industries resulting from Commonwealth expenditure. Commonwealth expenditure in Queensland has not been comparatively high ; but in that State most of that expenditure has been in respect of private enterprise, and the State Government's taxable area in that State has been correspondingly increased. Western Australia is in the same position as Queensland, with the unfortunate difference that the development which has taken place in Western Australia has been so belated that the Government of that State will not derive through Commonwealth war expenditure very groat benefit under this proposal. That development did not take place t sufficiently early to materially benefit Western Australia's finances. In Tasmania, Commonwealth expenditure has been relatively small. It has not been sufficient to affect the general financial equilibrium of the State.

Mr Holloway - Jut Commonwealth expenditure will create additional spending power in that State.

Mr ROSEVEAR - That is so. At the moment, I am discussing only the benefits through taxation which the State Governments have derived during the period of inflated expenditure on the part of the Commonwealth. South Australia, perhaps, fares the worst of the States so far as Commonwealth expenditure is concerned. I believe that that State has the greatest grouch against this proposal. It is true that, in South Australia, government factories have developed appreciably. However, I repeat that that State's finances derive litle benefit, except in wages taxation, from such expenditure, whereas the other States have already benefited to a very great degree because in their case Commonwealth expenditure has been incurred in respect of private and taxable enterprise. However, South Australia has benefited insofar as this expenditure has increased the income of he workers, and has entirely eliminated unemployment in that State. That additional wage pool will be only lightly taxed by the Commonwealth. Thus, the States, generally, have benefited from the Commonwealth ; but it is not correct to place all of them in the same category so far as revenue from State- taxes is concerned except those States in which lower incomes have been taxed.

This legislation, of course, has some disadvantages. So much has already been said with respect to them by the State Premiers, and those who support the view taken by the Premiers, chat I do not propose to discuss them. It is true that other avenues of taxes will still remain open to the States. However, whilst the States enjoy sovereignty, they should also retain rights; because sovereignty, without rights, is practically useless, and one of the greatest rights the States possess is the right to levy taxes. It is generally admitted that that right is fundamental to good government. In the past, the States have had some bitter experiences in connexion with agreements made with- the Commonwealth Perhaps this proposal savours to them of the Financial ' Agreement and the Premiers plan to which the State were induced to become- parties some years ago. The States took some time to realize the implications of those agreements. For instance, whilst only one of the State governments originally opposed the Financial Agreement, I venture, to say that the consensus of opinion among the State Premiers to-day is opposed to working that agreement. The same observation applies to the Premiers plan. Whilst it was almost universally endorsed at the outset, the majority of its supporters came to condemn it very soon after it was implemented. The more progressive States- thus have come to learn by experience that when they surrender portion of their authority to the Commonwealth, as was the case, for instance, in respect of loans, they invariably become anchored to the more backward States. - For that reason, the Premiers plan and the Financial Agreement, which were practically universally endorsed when they were proposed, are to-day universally condemned. I hope that on this occasion that process will be reversed. To-day, the Premiers condemn this plan ; hut I sincerely trust that its benefits will soon be made manifest, and that it will he universally accepted on its results.

Some honorable members have contended that what has come to be known as the Fadden plan is to be preferred to this scheme, because that plan provided for post-war credits. I agree with the right honorable member for Yarra (Mr. Scullin) that the Fadden plan was really conceived as an afterthought, following the rejection by the States of a plan somewhat similar to this. The Fadden plan was offered as a palliative to the States. It provided for a uniform income tax, with the promise of post-war repayments of credits on an unequal basis. The, taxpayers in the States with the lower rates of State taxes were to receive greater post-war credits from the Commonwealth Government. A notable feature of the Fadden plan was that it did not fix a date for the redemption of those credits.

Mr ARcHIE CAMERON - And no dato can be fixed for the termination of the war.

Mr ROSEVEAR - No; but it is provided that -this plan will terminate twelve months after the end of the war. I do not say that the Menzies Government, which sponsored the Fadden plan, could have arbitrarily fixed a date for the redemption of the post-war credits provided under thai plan; hut it could have promised that those credits would be redeemed within, say, two, five or ten years after the war ended. The premises made under that plan were "Kathleen Mavourneen " promises. The credits were to be repaid some day, provided the lenders lived long enough, and were very lucky. However, that plan was not acceptable to the House. I do not think that it would have been of .very great advantage to the States. Most certainly it would have given rue to nice legal points. The right honorable member for


Kooyong said that we could not avoid the constitutional obstacle merely by endeavouring to go around it. It would be interesting to know whether the Fadden Government's proposal was not aimed at circumventing the Constitution in the same way. After all, when is a constitutional offence committed ? That is an interesting point for lawyers. In this case, is it not committed at the time when the taxes arc collected, regardless of what promises are made? Here we have a uniform income tax scheme and a promise by the Commonwealth Government to pay back a certain amount to the States, whereas, in effect, the Fadden Government's proposal was to collect the tax and pay a certain amount of it back to the taxpayers. Surely, if by inaugurating a uniform income tax scheme the Commonwealth is contravening the Constitution, then the offence against the Constitution is committed at the time that the tax is exacted, and not afterwards. Therefore it would be interesting to know from the right honorable member for Kooyong whether the Fadden Government's proposal from a constitutional viewpoint was not on all fours with this one.

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