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Friday, 12 July 1946

Taxation Proposals

This analysis demonstrates clearly the limitations which face the Government in considering taxation reductions. Nevertheless, we have clone a lot in a short time, to cut down the financial burden of the war and its aftermath, and to push forward that reconversion of our economy which will bring higher production and more buoyant revenues. The Government is anxious to provide all possible stimulus to this reconversion which appropriate tax reductions can give; . therefore, as I have already indicated, the Government proposes to make a second substantial cut in direct taxation by reducing the income tax, including the social services contribution, at a cost of £17,500,000. Including the reductions made last financial year, this brings the total tax remissions np to £37,000,000 for income tax and £4,000,000 for sales tax, a total of £41,000,000.

Relief will be given through a graduated reduction of rate3. The new scale of rates will have the effect of lifting the income level at which persons with dependants, will become liable to pay income tax.

Tables showing the amounts of income tax and social services contribution that will be payable by various 'classes of taxpayers in different income groups, and comparing these amounts with amounts payable under existing and peak wartime scales, are being circulated.

The- new combined rates of income tax and social services contribution represent an overall reduction of 22 per cent, from the peak war-time rates first enacted in 1943. On that basis the reductions range from more than 47 per cent, on the lowest incomes to something under 20 .per cent, on incomes exceeding £1,500.

The new rates of income tax will apply for the full year commencing the 1st July, 1946. However, because of the necessity to print and circulate new scales of tax instalments, it may be about the beginning of September before adjustments can be made in the payasyouearn deductions from salaries and wages.

The social services contribution will be levied according to a separate scale. The basic rate will commence at 3d. in the £1, and will increase .progressively by 1/8d. for each £1 of income in excess of £100 until a maximum of 18d. in the £1 is reached. The basic rate will apply in the case of a person who is not entitled to any income tax concessions for dependants, life 'assurance, &c. In these cases the maximum .rate of lSd. in the £1 will apply to incomes of £220 and over, instead of £170 and over as at present. The basic rate will be varied in order to preserve the concessions allowed to contributors, for dependants, life assurance and superannuation payments, &c.

The rates now proposed for social services contribution will greatly facilitate the work of assessment of the contribution payable. It is therefore proposed to make the rate retrospective to the 1st January, 1946, which is the date on which the contribution was first imposed.

National "Welfare Proposals.

It is also proposed that in respect of old-age .pensions, including service pensions and invalid and widows' pensions, the permissible income shall be lifted from 12s. 6d. a week to £1 a week and the limit of property allowed from £400 to £650. At the same time certain other liberalizations of the law in regard to property will be made. The full effect of these proposals is explained in the statement which is being distributed.

It is probable that some 50,000 old-age, invalid, and widow pensioners not at present receiving the full pension will receive an increase. In addition, about 95,000 new pensioners will be brought into the field - 10,000 of these as a result of .raising the income test and 85,000 through raising the property limit. The total cost of the proposals will be about £4,500,000 a year.

The Government has decided that the question of any further liberalization of the means te?st shall be examined from year to year in the light of the financial .position existing at the time. Legislation to give effect to the present proposals will be introduced in the current session.

Settlement for Lend-lease and Reciprocal Lend-lease.

On the. 7th June, 1946, the Commonwealth Government and the Government of the United States of America signed an agreement under the terms of which final settlement was reached with respect to lend-lease to Australia, reciprocal lend-lease by Australia to the United States, and financial claims between the two countries arising out of the war. This agreement brought to conclusion many months of negotiations between Australian and United States representatives in Washington, and the final settlement not only represents a most advantageous arrangement for Australia, but also manifests a generous attitude on the part of the United States negotiators to Australia. The settlement undoubtedly reflects the same 'degree of close relationship and the spirit which existed between the United States and Australia during the war period.

Under the terms of the agreement, the United States Government releases the Commonwealth Government from any liability with respect to materials and services provided under lend-lease and consumed prior to V-J day. ' Similarly the Commonwealth Government releases the United States Government from any liability with respect to materials and services provided by Australia under reciprocal lend-lease and consumed prior to V-J day.

The agreement also provides that Australia acquires from the United States unconsumed lend-lease goods and materials, both civilian and military, on hand at V-J day, certain materials and services on order through lend-lease channels but undelivered at V-J day, and certain surplus war property of the United States armed forces. On the other hand the United States acquires from Australia all reciprocal lend-lease materials in the hands of the United States forces on V-J day and materials and services furnished by Australia to the channels but undelivered at V-J day, and the 31st December, 1945. Both Governments reserve a right to recapture lend-lease or reciprocal lend-lease articles held by the armed forces of the other Government, but it is clearly understood that this right will not be generally exercised.

In addition, except for- certain financial claims which are specified in the agreement or in respect of which the liability of either Government had already been acknowledged, all financial claims between the Governments of Australia and the United States arising out of ' the war are waived.

Australia has agreed to pay for the post-war value of certain machine tools and other items of capital equipment received under lend-lease and for certain lend-lease non-combat aircraft and spares remaining in Australia. In consideration of this lend-lease capital equipment and of the Australian purchases of certain United States Army and Navy surpluses, to which I have already referred, Australia will make a total and final payment of $27,000,000, or approximately £8,400,000, of which $20,000,000 is payable in United States dollars. The balance of $7,000,000 i3 payable in Australian currency and under the terms of the agreement $5,000,000 out of this $7,000,000 has been earmarked for the development of cultural relationships in a manner mutually agreeable to the two Governments. The remaining $2,000,000 has been earmarked for the purchase by the United States of real property and improvements required by the United States Government for its functions in Australia.

Following conclusion of the agreement, the Government instructed all Commonwealth departments to take immediate steps to declare to the Commonwealth Disposals Commission any goods which are surplus to the Commonwealth's requirements. The sale of these surpluses to private purchasers will be arranged by the Commonwealth Disposals Commission.

Lend-lease and reciprocal lend:lease represent the largest external financial transaction in the history of the Commonwealth. The total value of lend-lease received by Australia was about $1,500,000,000, -whilst reciprocal lendlease from Australia to the United States was approximately £285,000,000. In view of the very considerable amounts involved and the extremely complex nature of lend-lease and reciprocal lendlease operations, . it is a source of considerable satisfaction to the Commonwealth Government that the final settlement should be based upon the generous and acceptable agreement that has been reached with the United States .Government.

Copies of "the settlement' agreement are being circulated to honorable members for their information.

Production and Price Control

Greater all-round production of essential goods must be the central aim of economic policy now and for a long time to come. The war years have left their toll in shortages, some of which will take years to remedy. We cannot get back in a day all those standards of living and enjoyment which the war compelled us to forego. Yet we can win them back and much more with them if we will make an effort, and the way is now wide open for us to make that effort.

Most of our resources are free once again for civil production, and full employment of these, steadily maintained, can work wonders in output. Then, as output and real incomes rise, taxation can be reduced still further. It has been our policy to remove all forms of control which, tend to hinder genuine business dealings and the production of essentials. But we remain inflexibly opposed to those false inducements which inflated prices and excessive profits would give.

Control of prices in Australia has been a triumph of war-time administration. The fact that over the whole war period retail prices rase not more than 24 per cent, and that during the years when the strain on our economy was greatest they did not rise at all, is a record with which not more than two or three other countries can offer anything to compare. But we shall not gain the full value of this achievement unless it can be carried on into the peace years when the balance of production and demand can be trusted to look after price levels. At present purchasing .power still greatly exceeds the supply of goods and services, and must Continue to do so until local production and the flow of imports catch up with consumers' needs. Current earnings are running high and behind them, are the unspent balances and reserves built up during the war and augmented in recent months by the large disbursements of deferred pay to servicemen, so that the potential danger of inflation has so far been very little abated. The Government's 'price stabilization plan will no doubt require to be modified from time to time in accordance with the readjustment of basic cost and supply factors in the transition from war to peace. The Government is keeping the position under constant review, and will continue to use prices control as an instrument for the protection of consumers and the preservation of balance within the economy so long as the need remains.




I lay on the table the following papers : -

1.   Financial Statement by the Eight Honorable J. B. Chifley, M.P., Treasurer;

2.   Statement of Receipts and Expenditure of the Consolidated Revenue Fund for the year 1945-46; and

3.   Lend-Lease and Reciprocal Aid - Documents relating to the Agreement with the United States Government for the settlement of lend-lease, reciprocal aid, surplus war property, and claims. and move -

That the financial statement be printed.

Debate (on motion by Mr. Menzies) adjourned.

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