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Thursday, 28 May 1942

Mr HUTCHINSON (Indi) (3:17 AM) . - The measure now before the House is the culmination of a series of events which have taken place over a period of many years. We have to-day a situation which is reverse of what was contemplated during the early days of federation. Before federation, Australia was a collection of colonies, and the people in those days were jealous of their powers and prerogatives. There was in the feeling of the people for their colony a certain amount of nationalism, which was reflected in their approach to federation. Tinder the federal system the States were left with almost complete powers, whereas the Commonwealth was given only certain powers specifically prescribed. It was expected that th* States would retain full possession of the field of direct taxation, while the Commonwealth would raise all the revenue it needed by indirect taxation. It was not until 1910 that the Commonwealth first invaded the field of direct taxation. That was when the Land Tax Act was passed, and even then the purpose of that act was not so much to raise revenue as to break up large estates. It was not until the war of 1914-18 that the Commonwealth was forced seriously to invade the direct taxation field. From that time on the Commonwealth has tended to occupy an ever-increasing part of the field, and the States have tended more and more to shelve their responsibilities. During the financial depression, the Commonwealth still further extended its activities, when, owing to the conditions prevailing at the time, it was compelled to grant assistance to some of the primary industries. Even to-day it is notable that the States are failing in many respects to exercise those functions which come properly within their province. When the present war broke out, the Commonwealth was faced with the need for raising revenue on a scale never previously contemplated. A state of total war makes it necessary for the Government to control men and money. I cannot visualize the Commonwealth being prevented from obtaining the money it needs merely because the States have the right to impose certain taxes. The need for some new method of financing the war was recognized soon after the war broke out. The Fadden Government, before introducing its budget last year, made overtures to the States in an endeavour to achieve simplification of the taxation system, but the States refused to cooperate. The then Treasurer (Mr. Fadden) devised the scheme which was incorporated in the budget introduced last year. His government was defeated on that .budget, for reasons which we need not go into now, and one of the first acts of the present Government was to appoint a committee to inquire into means for simplifying income taxation, and for raising more revenue. Every parliamentary member of that committee had previously expressed his views on the subject in no uncertain way, and it was, therefore, only to be expected that the committee would evolve a scheme in conformity with the views which they had expressed. The present scheme is very similar to the plan outlined by the right honorable member for Yarra (Mr. Scullin) when speaking on the Income Tax Bill of 1940. One might say that the right honorable member for Yarra is the author of the present scheme. The honorable member for Robertson (Mr. Spooner), another member of the committee, has long been in favour of. a single taxing authority, and he could be relied upon to support the right honorable member for Yarra. I do not know whether Professor Mills had an open mind on the subject or not, but probably, when he found himself in the company of the other members of the committee, whose minds were already made up, he said, " You fellows have your scheme all ready, so we may as well call it a day ".

Mr SPENDER - I think that he advocated a similar scheme in 1933.

Mr HUTCHINSON - If that is so, then they were unanimous. The committee was, in effect, a biased committee because its members were already committed to certain views. This is not a uniform taxation scheme in that it does not cover all forms of Commonwealth and State taxation, but it is essentially a uniform income tax scheme. If the scheme made for equity I should welcome it. I find no fault with the principle that, in time of war, the Commonwealth should be paramount in finance. I do not object to the simplification of our complex taxing system, but this scheme is merely the foundation stone, and we must consider the nature of the edifice which is destined to be erected on that foundation. When one does that, one immediately becomes antagonistic. It is evident that the scheme, far from producing unity, will result in discord and litigation.

The main objection to the scheme is that it lacks the essence of equity. The bill seems to me to have strange ethics. It extols extravagance and condemns frugality. The two States that will be heavily hit are Victoria and South Australia. Those States have been noted over a long period for safe and prudent government. In Victoria, we have had no John Langs or Theodores. Social services have cost less in Victoria than in other States because of the policy pursued by successive governments in Victoria, whether Labour, Country party or nonLabour Ministries. In the wake of capital has flowed man-power, and in the wake .of industry and man-power has followed a standard of living which, I think, is unparalleled in any part of the Commonwealth, and possibly in any. part of the world. Because Victoria has followed on those lines and has not indulged in extravagances such as the palatial bathing pavilions seen on the north-coast of New South Wales, it is now to -be penalized for its frugality.

New South Wales is to receive out of the £33,000,000 mentioned in the bill the sum of £15,356,000, or £5 10s. 7d. per capita or 46 per cent, of the total; Victoria is to receive £6,517,000, or £3 8s. Sd. per capita, or 19.5 per cent, of the total ; whereas Queensland will get £5,821,000, or £5 14s. 4d. per capita, or 17.4 per cent, of the total. Taking into consideration the net contributions which the people in the several States will make to the Commonwealth for the purpose of financing the war and carrying on various government services, one finds that Victoria will contribute £16 5s. 3d. and Queensland £10 6s. Sd. as compared with £14 7s. 3d. per capita which will be contributed by New South "Wales; but Victoria will get back only £3 Ss. 8d. per capita as compared with £5 10s. 7d. per capita in New South Wales. The position of the people of Victoria and New South Wales is much more comparable than that of the people of the other States, because those two States have attained similar standards. The incomes of the various classes in New South Wales compare closely with those of the various classes in Victoria, and it can be seen at once that under this bill Victorians will fare badly.

I do not favour per capita payments to the States because the stages and conditions of development in the various States are dissimilar, but one gets a wider view of the scheme if one looks at what would be the position if per capita payments were made. Victoria would then receive £2,900,000 more, New South Wales would lose £3,500,000, and Queensland would lose £2,100,000. Therefore, it appears that Victoria is getting a raw deal under the scheme. A similar remark could be made with regard to South Australia. The disparity is heightened when one considers the methods by which taxes are raised in the different States. New South Wales raises £6 0s. 3d. per capita by direct taxation and only £2 16s. 5d. per capita by indirect taxation, whereas Victoria gets £3 9s. 7d. per capita by means of direct taxation and £3 2s. 8d. per capita by indirect taxation. In New South Wales the field of indirect taxation is hardly touched, although in Victoria roughly half of the total sum raised is obtained by direct taxation. Therefore the capacity of the people on the lower incomes to maintain their standard of living must be less in Victoria than in New South Wales. Superimposed on the higher indirect taxation operating in Victoria comes the much higher indirect taxes levied by the Commonwealth. The burden of indirect taxation is higher in Victoria than in New South Wales, yet, under this formula, Victoria will pay much more into the Commonwealth pool than New South Wales, and will receive substantially less.

In New South Wales, practically no land tax is levied. The total land tax in that State amounts to only £2,411 annually. In Victoria, however, £492,000 if raised by means of the State land tax. There again we have a big discrepancy. In New South Wales the State would be able to raise some hundreds of thousands of pounds, if not £1,000,000 or more, by increasing indirect taxes to the same degree as in Victoria. That State, with its high indirect taxes, has not the same latitude in that regard. These facts are well known to the people of Australia. The adoption of the proposed inequitable system would tend to cause trouble which in these times we should all be anxious to avoid. In addition, in the last few days, Tasmania and Western Australia have apparently been able to extort from the Commonwealth additional sums of money which immediately affect the formula laid down in this bill. There is a feeling in the community that, if governments are of a certain political colour, more money is available in the pool for them than for the governments of other States.

One of the main virtues of the scheme, according to the right honorable member for Yarra, is that it will effect a saving of man-power. The committee which investigated the proposal estimated that it would release 1,000 men for war work, and result in a saving in the gathering of taxes of £275,000 a year. I doubt whether anything like that saving of man-power and money will be made. If such a saving be possible, some of the States must now be unduly extravagant. The Taxation Department of Victoria has gone closely into this matter and the Government of that State has been informed that there will be a saving in man-power in that State of only 43 male employees. Where is the rest of the saving to be made? If the saving in Victoria will be 43 persons, it should be about 60 or 80 in New South Wales. According to the figures presented to the Government of Victoria by the State Commissioner of Taxation, I doubt whether any great saving of manpower will be made as the result of thi3 scheme. Many, if not all, members of the Opposition are impelled to support the Fadden Government's scheme, which contained no provision that would result in litigation or discord. The Fadden budget was received favorably throughout the Commonwealth.

Mr Frost - Where?

Mr HUTCHINSON - Throughout the Commonwealth.

Mr Frost - What became of the Fadden Government?

Mr HUTCHINSON - It was not thrown out of office because of faults in its budget. The honorable member for Henty (Mr. Coles) stated that he found no fault with the budget. I am convinced that the more the people examine the Fadden Government's scheme, the more they will appreciate its good points. The scheme was so designed as to provide vary-, ing amounts of post-war credits in the different States for the purpose of removing inequalities. The principle was the adoption of a uniform national contribution, from which 'was deducted Commonwealth taxation for the current year, and State taxation for the previous year, the balance being represented by post-war credits. That scheme had the advantage of creating what may .be described as " deferred pay " for thousands of people, and removed inequalities that exist in the present system. In addition, the scheme attempted, and went a long way towards achieving, the withdrawal from the masses of the community some of their excess purchasing power. The scheme was so designed as to produce equality as between State and State, and by effecting a reduction of the demand for consumer goods, would release man-power for the war effort. The Government has yet to attempt something along those lines. During the past few months people have indulged in an orgy of spending as a result of the failure of the Government adequately to withdraw excess purchasing power from the public. At the outbreak of war the national income was £700,000,000 per annum. Last year it rose to £800,000,000, and competent authorities have estimated that next year it will be approximately £1,100,000,000. That means that nearly £400,000,000 is passing from hand to hand, mainly among people in the lower and middle income groups. This has caused an orgy of spending, which has compelled the Government to introduce the rationing system. People are now comparing " Fadden's fair finance " with " Curtin's coupon queues The Government will be obliged to restrict this enormous volume of purchasing power. I do not regard the proposed new rates of tax as representing anything more than a subject for honorable members to discuss. As the honorable member for Fawkner (Mr. Holt) stated, the rates are the sugar-coating of the pill. The time must come when the Government will be compelled, by force of circumstances, to tax the lower income groups in order to finance the war. When the Government does so, the real benefits of the Fadden Government's scheme will become apparent to the general public. The following figures, which are based on Victorian incomes, illustrate my contention: -

The Fadden Government's proposal abolished existing inequalities as between State and 'State, and was much more acceptable to those States which had, in the past, conducted their finances prudently. But the outstanding advantage was that it provided for people 'who to-day earn and spend easy money a nest-egg that would be of inestimable value to them in the difficult post-war era. Whilst I agree that a unified system of taxation is necessary and that the Commonwealth Parliament should exercise supreme power over finance an war-time, I cannot support the proposal of the Government, and I am driven, not unwillingly, to realize the advantages of the Fadden budget.

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