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Thursday, 25 July 1946

Mr BURKE (Perth) .- This financial statement has been presented because time does not permit of a full budget being presented before the general elections. Such a method of stating the results of last year's financial operations, And indicating the probable position during the present financial year, as well as the tax proposals of the Government, has been attacked not only by the Leader of the Opposition (Mr. Menzies), but also by the press throughout Australia, on the ground that it is a grave departure from established practice. The right honorable member for Yarra (Mr. Scullin) has demonstrated beyond contradiction that far from being a new procedure, this is the normal practice .when general elections are about to be held. Therefore, we have no need to apologize for its having been adopted on this occasion. It will be perfectly obvious that if in past years it was impracticable to obtain all the figures that were needed, for the presentation of a budget, and to have a lengthy debate upon them, before

September, there is ample justification for the present procedure because of the difficulties associated with the problem of transforming the national economy from a war-time basis to a peace-time basis, and the fact that our finances are now more interwoven with those of other countries than they were at any previous period in our history.

The Leader of the Opposition has, in effect, paid a most generous tribute to the financial proposals brought down by the Treasurer (Mr. Chifley). He devoted a goodly portion of his time to an exposition of the claim that his- government should be given credit for many of the results that had been achieved because of what it had done while it held office. We do not deny to him and his colleagues the credit to which they are entitled for the measures that they introduced. But the fact that the right honorable gentleman devoted only the first -twelve minutes of a speech which lasted for ian hour and ten minutes to a serious examination of the present' financial and taxing proposals, establishes their immunity from effective challenge. The right honorable gentleman has held office in non-Labour governments for many years, during which he was Prime Minister >and Treasurer, yet he had to make the weak confession, " I leave to honorable members on my side the dissection and discussion of the financial proposals in this statement ". The House and the country will realize that no more generous tribute could be paid to those, proposals than is implicit in his virtual avoidance of criticism of them. The main thing, he said, was that the Government should pursue a bold, progressive policy. That has been the aim of the Government. Although he did not let fall a whisper of it last night, he has let it be known that a major plank of' the policy that he will place before the electors on behalf of the Liberal party _ during the forthcoming election campaign will be an attack upon the taxing proposals of the Government, and the submission of the counter proposal that the Australian Country party and Liberal party coalition, if returned to power, will reduce taxes by 40 per cent, over a period of three years. We have , not been told whether that 40 per cent. Ls to be a flat-rate deduction, beginning with the bottom range of incomes and rising to the top. The people will demand a full explanation of it. The right honorable gentleman and his colleagues have allied to their proposal for reduction of taxes an unrelenting insistence upon the imposition of a contributory social services tax. True, it has not been designated a tax; but as it would be a contribution from which would flow, as a natural consequence, the right to obtain social ser.vice benefits, and there would be no possibility of avoiding payment of it, it can no more escape being described as a tax than can any other contribution by the people which adds to the general revenue and is utilized for the numerous and varied purposes upon which the Government must expend public moneys. This explains why the' right honorable gentleman could not, last night, make any attack upon the Government; he -knew that the tax reductions promised in the financial statement we are now considering will exceed those that have been promised by the Australian Country party and the Liberal party.

The honorable member for. Warringah (Mr. Spender) dealt at great length with a number of almost irrelevant matters, but pursued the same course as the Leader of the Opposition when he said that the figures and their implications could be ignored and that there should be a concentration on the productive capacity of this country. I have never, I hope, shirked a duty that has been imposed upon me; but I have not gone about the country suggesting that production should be increased, because I regard, that as a self-evident truth which must be clear to the mind of every member of the' community. Even when there is production of a commodity with which the market appears to be over-supplied, there is still a shortage of a diversity of goods which it is within the industrial capacity of the community to produce. The everpresent need is for the production of all the goods that are required in this socalled advanced age, to satisfy the desires or ease the burdens of the people generally. There is no occasion to labour this self-evident truth, because the' force of it is felt even by those who examine the position only cursorily. That view is not invalidated because it may be claimed that individual production to-day is less than it has been in the past. I do not intend to argue, at the moment, the truth or falsity of that assumption. A thousand other influences are at work, and there are numerous other problems with which the community is confronted. Therefore, it cannot be logically contended that the taxation imposed to-day is solely responsible for any decline of individual production. The strongest attack is made upon existing levels of income tax. I hope to show shortly that many df those who have made a searching investigation of this problem do not support the contention that has been advanced. The honorable member for Warringah dealt at some length with what he claimed were -other significant features of the financial statement. Such matters would normally be considered when the detailed estimates were available. But as those details are not available on this occasion, no doubt the honorable gentleman acted legitimately in devoting his attention to those items. He referred to one amount of £62.000,000 under the heading of " Miscellaneous items ". I agree that this is a considerable amount. On the other hand, we should remember that there must be many and varied items of expenditure which could justifiably be included under 'he heading of "miscellaneous" when We consider the total volume of war expenditure. The honorable member approached the subject in a manner which, if not intellectually dishonest, was certainly calculated to deceive. He compared the amount, of £62,000,000 under, the heading of " miscellaneous items " with the total budget of £100.000,000 for the first year of the war. However, the proper comparison would have been with the total budget for the present year, just as it would have been proper to compare the amount for miscellaneous items for the first year of the war with the total budget for that year.

The honorable member discussed taxation rf companies It would probably be possible to make out a case for the abolition of company taxation, leaving company revenue to be taxed in the hands- of the: shareholders; except, of course,, dividends drawn by overseas shareholders. Ther.e can be no: denying; however, that under the present, system most trading: companies are very prosperous; their balance-sheets showing them to. be in a better position than for years past. Reserves have grown, despite the tax on- undistributed: profits,, or. perhaps because, of it. Neither can it be successfully argued that company taxation is a deterrent to accumulation of capital, because the facts prove otherwise.. Only recently,, the Sydney Morning ' Herald, L believe; said, that, capital was being- invested, in industry at the rate, of £1,000,000- a month. Certainly, that does not indicate any general unwillingness to- invest capital. Indeed-, the problem" is, not how to encourage: the investment of capital, but how to restrain investment, because the goods necessary for the expansion of, industry are still in short supply.

The- honorable member for Warringah made use of the argument often advanced by members of the Liberal school that high rates of income tax prevent saving and retard production. It would appear, however, that high and steeply graded tax rates are no less necessary now than they were during the wa-r. They are; infact, complementary to- any system of price control. The late Lord . Keynes argued that, far from high tax rates being- a deterrent to. enterprise at times like this, they were necessary to prevent a slump developing from incipient boom conditions. There is in Australia to-day a very general acceptance of the idea that a slump is inevitable. Almost every day I am asked, " When will the slump come ? For how long can the depression be avoided ? " My general reply is that it can be avoided only for so long as we have in office the present Prime Minister and Treasurer (Mr; Chifley)- with his intimate knowledge of finance-, and his determination to oppose the forces which are working for a relaxation of controls. It is true that honorable members opposite have not urged the abolition of price control. Indeed, they have expressed themselves in favour of its retention, but they have advocated the ruthless slashing of income tax rates on the assumption that this would stimulate production. Point is added to my remarks by the almost sneering, references of the honorable member for Warringah to the well-deserved tribute, paid by the right honorable member for Yarra. (Mr. Scullin) last night to the Prime Minister.. I think most honorable members will agree that the Prime Minister, by his close application to duty, and the untiring expenditure of hi* strength in the interests of . the country during the war, has richly deserved the tribute paid to him by the right honorable member for Yarra. I propose to quote the opinion of the late Lord Keynes, who was formerly financial adviser to the British Treasury, on the subject of income tax pates. In his book, The Genera,! Theory of Employment, Interest and Money, he said' at page 231 - '

One of the causes of. a. trade depression is to be found during the preceding boom, when the rich, out of their rising incomes, attempt to save mora money than the quantity for which,, at. the existing levels of consumption it is possible to find investment opportunities. The larger the height of direct taxation the greater will bc the proportion of the national income which finds its way into the pockets of1 the poor, a-nd the attempt to oversave will be less strong, with smaller degrees of i:caction towards a slump.

There is not a real boom in Australia to-day, but every factor is present which makes for a boom. There is a tremendous accumulation of savings in the hands of the. people, and any substantial reduction of tax rates, would leave still greater spending power with them. Even with the rates as high as they are now. persons in the higher income groups have enough money to buy all they need, and something left over for luxuries. Any sudden increase of spending power would undoubtedly tend towards a boom.

Honorable members' opposite have, argued that high tax rates prevent saving and the accumulation of capital, discourage effort by members of the professions and other groups, and' generally retard production. One of the most extensive and far-reaching inquiries into taxation and allied subjects was conducted by a committee appointed by the British House of Commons. It was under the chairmanship of Lord Calwyn. and among its members were some of the most distinguished experts on finance and economics in Great Britain. The committee examined ' all aspects of finance, public indebtedness and taxation, and reported to the Parliament in 1927. Its report was unanimous, and, at page 137, the following paragraph appeared

Over the whole field of income we conclude that the income tax borne by employees and professional men has no important effect on their work and earnings.

That might not seem to be true at all times. For instance, during the war, it was claimed that some persons refused to do extra work because they would have to pay so much tax on the higher income they would have earned, 'but the situation is entirely different now from what it was then. From now on, thousands of professional men will be returning from the forces and graduating from the universities - doctors, lawyers, &c, and they will be only too willing to take a share of the work offering. That is true right throughout all branches of the arts and. crafts. Our experience as well as the opinion of this most learned body, formed after wide research, undoubtedly leads us to believe that the incidence of income tax has little effect upon the work or earnings of the community. The committee also inquired into the weight of income tax and its. effect .upon the living standard of the people. Income tax in Great Britain is rather steeply graduated and taxpayers there are liable to payment of a sur-tax. The total levy on the higher ranges of income accordingly represents, a very considerable sum. On this matter the committee said -

In the lower and middle ranges of income those with fixed money incomes have in some cases . suffered. Again, in the middle ranges, the tax has fallen with relative severity on the married man.

The Government has afforded the greatest measure of relief to married men. The Government has not only made this worthwhile gesture; it has also approached the subject of taxation -generally in an equitable manner. Dealing with the savings of public companies the committee said -

Tax. we have seen, absorbs a large amount of the savings of public companies. As against this we believe that the tax has had a considerable effect in inducing companies to withhold larger gross amounts from distribution.

That bears out the contention, first, that companies will place larger amounts to reserve in times such as these, .and, secondly, that the effect of the tax on the undistributed profits will encourage them to put more rather than less in reserve than they would were tax levels not so high. Governments which preceded the present Government have been inclined to look upon their taxing powers solely as a means of collecting money to meet governmental expenditures; far too little attention ' has been paid in the past to the much more important subject of the expenditure of the proceeds of the tax.' The revenue from income tax to-day. represents a very considerable amount. I believe that we may anticipate a gradual lessening in the demands made upon us in this respect by the Treasury because high rates of tax were imposed solely to meet war emergencies. Now that war expenditure has decreased, we should take advantage of the opportunity to decide on a scientific basis whether we should bring about a substantial reduction of income tax or maintain the rates of tax at their existing levels and use the money which otherwise would have remained in the pockets of the people to provide a great number of public needs. "We might consider, for instance, whether at this stage we should not make greater contributions to medical research and health campaigns in order to bring about a general improvement of the health of the community. The immediate effect of such expenditure would be to ease pain and suffering; and the second to increase productive efficiency, both immediately and through a longer life. Thirdly, as the money provided is expended, it must percolate through the community, and thus increase tax collections.

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