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Wednesday, 8 December 1965

Mr CREAN (Melbourne Ports) . - I wish to indicate at the start that whilst the Opposition agrees with the material in this Bill it intends in the committee stage to move an amendment the purpose of which will be to exempt from the payment of payroll tax municipal or other local governing bodies or an authority established for the purpose of carrying out all or any of the functions ordinarily carried out by such a body otherwise than in the conduct of an enterprise which in the opinion of the Commissioner is a trading enterprise. I shall outline the purpose of the amendment later but I wish to indicate that it is the Opposition's intention to move that amendment in the committee stage when we are dealing with clause 3. The Bill amends the Pay-Roll Tax Assessment Act to facilitate the application of a rebate system in connection with the pay-roll tax which applies when certain firms increase the volume of goods they are producing which are sold overseas. This sort of measure is necessary apparently because of the commitments which Australia has to such bodies as the General Agreement on Tariffs and Trade which provides that the member countries shall not discriminate in their taxing laws so as to favour an exporter as against other producers in an economy. Apparently the only way that this provision can be avoided is to remit certain taxes which technically are described as indirect rather than direct taxes. Payroll tax is regarded as being an indirect and not a direct form of tax. Details along these lines are to be found in a publication by Her Majesty's Stationery Office of 1964 dealing with the report of the Committee on Turnover Taxation to which I will refer later in my speech. In essence, the report points out that as long as a tax is an indirect rather than a direct tax some manipulation of it can be made to assist the promotion of exports.

All I wish to draw attention to is the fact that it is, in my view, rather an unsatisfactory method of dealing with this problem. We can all agree that Australia has to build up increased export markets. It has been estimated, I think, that we have to increase our exports in total by some £200 million per annum over the next seven or eight years if our economy is to continue to be able to support the levels of imports to which we have allowed ourselves to become dependent. Using payroll tax as a medium for this increase seems to me to be a fairly inadequate and precarious way of going about things. I direct the attention of honorable members to statistics which are contained in the most recent annual report of the Commissioner of Taxation. I refer to taxation statistics for 1963-64 which are part of the 44th annual report to Parliament of the Commissioner of Taxation. At page 155 of this document are to be found details of the rebate of payroll tax on export trade.

The report shows that, for the year 1960- 61, 924 separate undertakings were allowed this rebate. These firms between them had paid £11,353,000 in payroll tax and were entitled as the result of the provisions of the existing legislation to total rebates of payroll tax of £2,166,000. In 1961- 62 the number of claims allowed had increased to 1,034 and the payroll tax paid by those concerned was £10,400,000. The rebates of payroll tax allowed totalled £3,503,000. In 1962-63 the number of claims allowed dropped to 966. The 966 firms concerned had paid £9,021,000 in payroll tax and were entitled to rebates of £2,685,000- a fall of some £800,000 against the rebate entitlement figure for 1961-62. The 1963-64 figures are not contained in this report. What I draw attention to is that in terms of export trade as a whole the figures are really fairly insubstantial. In 1962-63 the figure shows an increase in export trade of £164 million over the two base years ended June 1960. That increase is much less than the increase in Australia's export trade that we need year by year if we are to survive. Some other export encouragements are given in legislation. For instance firms which spend money on advertising their goods in potential export income markets are entitled to double tax deductions on expenditure on advertising which is applicable to that form of trade. That is another device which has been made but, again, there are serious limitations in respect of how far a country can move in this kind of concession by reason of the commitments which it has under G.A.T.T. and other provisions.

I come now to the report of the Committee on Turnover Taxation to which I referred earlier. Paragraph 186 on page 57 states -

For reasons which will appear below, the choice of possible methods of assessing a valueadded tax would have to take account of the United Kingdom's obligations under two international agreements.

Only one of the agreements referred to applies to Australia. The two agreements mentioned are the General Agreement on Tariffs and Trade, which is referred to rather popularly as G.A.T.T. and the other one in the case of the United Kingdom is the European Free Trade Area Convention, which does not concern us. The report continues -

We summarise the relevant provisions of these agreements in Appendix £. They preclude various forms of export subsidy, including subsidies which operate through the taxation system. Briefly, certain "kinds" of taxes, and in particular direct taxes on businesses, may not be remitted in respect of exports. The taxes which may be remitted or repaid are: -

(1)   taxes charged at importation, for example, customs duties, and

(2)   other indirect taxes on the goods exported; and then the " amount " of any repayment may not exceed what has effectively been levied at one or more stages on the goods. These obligations are relevant because the advocates of the valueadded tax have assumed that it would be remitted on exports ....

The point there, of course, is that as far as Australia is concerned payroll tax has been chosen as the medium to apply this subsidy because it is an indirect tax. This method, however, suffers from the deficiency that a form of export trade which is, say, capital intensive rather than labour intensive, is more or less at a disadvantage because the maximum amount of rebate which is available is the amount represented by the payroll tax, which is at the rate of only 2i per cent, or 6d. in the £1 on the wages bill of the particular undertaking. A highly mechanised industry, of course, has a relatively small labour component in its total cost, but the amount of subsidy that it can obtain is governed by the payroll tax. There could be firms which perform as well as other firms in terms of increasing exports but which, having a very small labour component in their total costs, would find it very difficult to obtain any appreciable benefit from this kind of assistance. There are other firms, of course, with high labour contents in their total costs and these would receive a considerable advantage.

The purpose of the amendment proposed in the Bill before us is to correct an anomaly which has been discovered in the operation of the tax rebate scheme as it applies to the motor vehicle industry in particular. Apparently the difficulty has been that in applying the rebate to what are called knocked down vehicles as distinct from built up vehicles, the knocked down vehicles have been somewhat at a disadvantage. The Act, as it is currently written, does not appear to cover trade in knocked down vehicles. The amendment is designed to overcome this difficulty.

Of course many countries are doing, with respect to their motor vehicle industries, what Australia is trying to do today. They are endeavouring to build up an industry of their own. They are endeavouring to have as low as possible a foreign component in their vehicles and as high as possible a proportion of locally made parts. New Zealand, Indonesia and some Asian and South East Asian countries, in which Australia has been developing a market for these goods, say: "We are quite happy to take Australian motor cars but we would like to do some of the assembling ourselves." Apparently the law as it currently operates places partially assembled vehicles or unassembled parts at some disadvantage in this trade, in that they do not qualify for the rebate.

Another factor that must be considered, of course, is that unassembled vehicles take up far less space than assembled vehicles. There is a big saving in freight charges if parts are packed together for shipping and assembled in the country of destination. With a fully assembled vehicle, of course, a good deal of the space taken up on the ship is the space that would normally be occupied by the passengers when the motor car was on the road. To pay freight on the basis of space occupied by fully assembled vehicles is a rather extravagant way of exporting them.

In order to overcome these two kinds of difficulties this amendment is being introduced. Apparently at the same time the Government is trying to secure an internal reform that the motor vehicle industry has been a little reluctant to introduce. I refer to the objective of an Australian component of 90 to 95 per cent, in locally assembled vehicles. One of the conditions of the application of this new benefit is that there should be a satisfactory level of Australian content in the local production and that there should also be a satisfactory proportion of Australian-made exports as against imports which are later exported.

If the objective is to be achieved some discretion must be allowed. I have heard many rather nasty things said in this House in the last day or two about the discretion of the Commissioner of Taxation. Apparently in this case the discretion is not to be exercised by the Commissioner of Taxation but by the Secretary of the Department of Trade and Industry in conjunction with the Treasurer. Just what the medium of communication between the two of them is I am not quite sure, but I suppose it would not be difficult to establish. In any case it is on the recommendation of the Secretary of the Department of Trade and Industry, confirmed by the Treasurer, that a firm will or will not be deemed eligible for the rebate under the amended legislation. One would perhaps think that there ought to be a little more discretion rather than a little less of it in the operation of modern economic affairs.

Mr Kelly - If it does not go too far.

Mr CREAN - Well, one can perhaps carry discretion too far, and I suppose one should not indulge at all in indiscretion. But it seems to me that sometimes when this nasty word " discretion " is used the implication is that it will always be applied indiscretely. This is not my experience of the Commissioner of Taxation, however. I do not think he is a sort of inverted Micawber waiting for something to turn down. He exercises his discretion, as far as he can, in the interest of the person concerned just as much as in the interest of the preservation of the revenue.

So much for this aspect of the Bill. I repeat that this is a rather unsatisfactory, hole and corner method of going about subsidising exports. It has distinct limitations. No matter how successful one may be in promoting one's exports, the maximum amount of rebate available to one's firm is the amount of the payroll tax, which is 2i per cent, of the wages bill. So that if wages represented only half of the total costs, there would be only a rather minor overall incentive available. In this connection, however, I must remind the House that the whole of the rebate allowed, as represented by the payroll tax payable, will be applied in the direction of the export trade rather than of the total turnover of the company, so that perhaps the advantages are a little more significant than they appear.

I think the Treasurer said in his second reading speech that for the year ended June 1965 the total value of motor car exports was about £16 million. The figure for completely assembled vehicles was, I think, £8.3 million, and the value of partly knocked down vehicles and components was £7.7 million. I think the Treasurer also directed attention to the fact that over a comparatively small number of years our exports of motor vehicles and components were very similar to our exports of wheaten flour. The flour industry has been in existence for a long time, and I think in many respects it does not really afford a relevant comparison. I believe that many countries are doing with flour what they are doing with motor cars. They prefer to import their own wheat and make their own flour, for they then build up an industry that is much needed in underdeveloped countries. The Treasurer made the point that exports of motor cars and components were becoming a quite significant part of Australia's export trade.

It is interesting to note, when one looks at the details of the statistics provided by the Commissioner of Taxation, that the major beneficiary of this payroll tax rebate is the metals, metal manufactures and machinery group of industries which, presumably, includes the motor car industry. In the financial year 1960-61, out of rebates totalling £2,166,000, £736,000, or slightly more than one third, went to that group of industries. In 1961-62 £2,130,000 out of a total of £3,503,000 went to that group. This was nearly two thirds of the total. In 1962-63 the proportion had dropped to £1,166,000 out of £2,685,000. Apparently in that financial year there was relatively a slump in the export performance of that branch of industry. This, of course, may have had something to do with conditions overseas or may even have been the result of retaliatory measures taken by some countries that had formerly accepted exports of metals, metal manufactures and machinery without introducing tariff difficulties. I understand that Japan, for instance, has a fairly high tariff on imports of Australian motor vehicles and parts. I do not know what the arrangement in Australia concerning Japanese car imports is, but the Japanese car industry seems to be having increasing success in capturing a section of the Australian market.

As I have pointed out, the payroll tax rebate suffers from the other deficiency that its benefits are limited by the wage component in total costs. Therefore, to some extent the capital intensive industries are at a disadvantage compared to the labour intensive industries. Surely we in Australia should be encouraging capital intensive rather than labour intensive industries. I hope that the Treasury will further consider this question of the encouragement of exports, bearing in mind the distinct limitations that apply under the General Agreement on Tariffs and Trade. This form of assistance represented by the rebate in respect of payroll tax is rather inadequate when we contemplate the increase in export trade that Australia needs in the years ahead.

At this stage I should like to discuss the general position of the payroll tax as it applies in our tax structure. According to the Budget estimates which were presented to us by the Treasurer at the beginning of this sessional period and with which we dealt not very long ago in this chamber, the right honorable gentleman contemplated that in the current financial year the payroll tax would yield a total of £82 million. Excluding from consideration items such as the Post Office - the self balancing items - the payroll tax was estimated to be responsible for £82 million out of total tax collections of about £2,200,000, or a little more than 3 per cent, of the total. In many respects, the payroll tax represents an unsatisfactory form of tax. However fortunate may be the application of the export rebate, this is a most unsatisfactory form of tax for any modern society to rely on. It came into being in 1941 to finance the payment of child endowment. I believe that in some respects it is still in theory tied to that benefit. In practice, of course, all the money is paid into one fund - the Consolidated Revenue Fund. The Commissioner of Taxation, in his 44th report, at page 81, stated -

The rate of payroll tax has remained unchanged since its introduction and is £2 10s. per centum of wages in excess of the general exemption.

In other words, this represents a tax of 6d. in the £1 on the wage bill of all those employers that are liable to pay it. Referring to the payroll tax legislation the Commissioner stated -

A feature of the legislation is the wide scope of the tax. Exemptions are limited to wages paid by the Governor-General-

Presumably for his own staff - or the Governor of a State, the representatives in Australia of the Governments of other countries, public hospitals and certain other hospitals, public benevolent and religious institutions and a few specified organisations such as the South Pacific Commission. Wages paid to members of the Defence Force and certain ancillary services are also exempt.

It is specifically provided that the Crown in the right of a State, municipal and other local governing bodies and public authorities which do not pay wages from the Consolidated Revenue Fund, are liable for payroll tax.

This is the matter with which the amendment that we propose to submit in Committee will be concerned. What the Commissioner of Taxation did not say in his report was that the Commonwealth Government's own wage bill is specifically exempt from the tax. The Commissioner used the words " the Crown in the right of a State ". The Crown in the right of the Commonwealth does not pay the tax. I believe that there is a certain legitimate ground for grievance on the part of the States over the Commonwealth's exempting itself from the payment of payroll tax on its wages and specifically providing that the States shall pay the tax on the wage bill concerned with their own administration. I suppose that it may be argued: The States may collectively pay some £6 million or £8 million in tax in this way but if they did not do so they would only receive £6 million or £8 million less in reimbursements under the formula adopted under the uniform tax arrangements. That may seem a consoling aspect of the matter, but it seems to me to represent a rather silly form of bookkeeping for one to go to all the trouble of imposing a tax of 6d. in the £1 on the wage bills of the States and then to say that they are really reimbursed under the overall uniform tax formula for the sums so paid. This seems to be a silly way of going about the matter.

A similar sort of escape is not available to municipal authorities. I turn to what are described in the taxation statistics provided by the Commissioner of Taxation as a supplement to his 44th report as " Public Authority Activities (n.e.i.) ". This apparently means that they are not elsewhere included. There is a special section for electricity, gas and water services, which are subject to public authority ownership. For the purposes of payroll tax statistics they are treated separately. The section given over to public authority activities relates mainly to State administrations plus local government and semi-government activities not related to business undertakings. The figures at page 152 of the taxation statistics show that in June 1964 there were 854 payroll tax returns lodged by employers in this group and that the wage bill of the group in that month totalled £40,088,000. This represents about £480 million annually. That is about one seventh of the total amount of wages on which payroll tax is collected.

Statistics show that for the month of June 1964 the total wages on which payroll tax was levied was £286,923,000 and the component of that amount representing public authority activities was about £40 million. This year the estimated collection of payroll tax will be £82 million. At a rough guess one seventh of that amount - somewhere in the region of £12 million - will be collected by the Commonwealth from public authority activities. Let us exclude from consideration the part that belongs to the States as such in the sense of their own direct administration which is rather consolingly looked after in the tax reimbursement arrangements. That leaves about £6 million to be borne by the municipalities and other forms of activity in the -community. Then looking at the number of people concerned, I think it is rather surprising to see the total employment in public authority activities at the administrative level, excluding the Commonwealth. The report shows that at June 1964 there were 337,000 such employees, 251,000 of whom were males and 86,000 of whom were females. There is a fair body of people in this field. Of course, the only place that the municipalities can go to obtain funds with which to pay the tax is to their ratepayers.

One of the difficulties in government today is that local government seems to bc becoming the poor relation in the administrative hierarchy. We have three levels of government - Commonwealth, State and local government - and basically the local government authority relies on a rather antiquated property system of rating. In many respects it is a very inequitable form of revenue raising, but in aggregate the municipal authorities have this additional burden of about £5 or £6 million imposed on them by reason of the uncharitable policy of the Federal Government. If this tax of £5 to £6 million were not imposed by the Commonwealth, it could well adjust the loss of revenue by more equitable methods of taxation. If the Commonwealth did not impose this tax the various municipalities and other semi-governmental bodies in the community would have this additional sum with which to provide services for their ratepayers or their various constituent members.

We have talked of this amendment for many years in this House. I think as far back as 1956 or 1957 we moved a similar amendment because we believed that this was a silly, messy, inefficient way of collecting revenue and that it put an unnecessary penalty on a very important section of community activity which had no recourse to meeting it other than by raising rates. Local governments are still called upon to provide many important functions. As an example, let us consider the average municipality in the metropolitan area which might employ between 300 and 500 people. The municipality could well have a wages bill in the region of £500,000 to £1 million, and 2i per cent, of that is about £25,000. I do not believe that I know of any municipality that could not do a great deal with that £25,000. I believe that municipalities could apply that £25,000 more efficiently than the central government could apply the £6 million that it receives from those various bodies.

I believe that one of the difficulties that we are suffering from in our governmental system at the moment is the kind of marginal starvation at the State and local government boundaries. Where such things as baby health services or greater provision for library services are required, to take just a couple of examples, local government bodies are often looking about for sums as small as a few hundred pounds and, certainly, a few thousand pounds would be a very welcome bonus to most of them with which I have had any experience. We therefore urge the Government to take a serious look once more at the whole question of payroll tax. I hope that some day this tax will be abolished because it seems to me to be a very silly form of taxation. It is imposed at a flat per centum rate, and the fact that it has remained unchanged since 1941 when it was introduced simply points to the fact that it is regarded as an easy way of raising £80 million. But it is certainly inequitable in its application. It is applied whether or not an undertaking is successful. It is not like company tax. At least that tax is levied only if the concern makes a profit. If an industry in a country town or somewhere else were struggling to survive it might be given some relief if it were relieved of its payroll tax burden. This tax falls heaviest on the industry which employs the most labour, and it applies irrespective of the state of the industry.

No matter where we live, in the smallest municipality or the biggest, we are still Australians and we should be able to have the same sorts of standards from one part to the other. But the harsh application of the payroll tax is a real impediment in some of the smaller municipalities. As I have suggested, often the services languish just for the sake of a few hundred or a few thousand pounds. I urge the Government to realise that it is time it gave serious thought to whether the whole structure of taxation should be reconsidered, but in particular that it should contemplate anew the necessity to continue the payroll tax. Even if it does not want to take the courageous step of abolishing the tax all at once, at least it could move in the right direction here as it is moving in the right direction with the export bounty. It could remove the tax as it applies to municipal and other local governing bodies. I shall formally move the amendment in Committee. Meanwhile, I have foreshadowed it and have outlined the detailed case upon which we base our suggestion. We do not oppose the provisions of the measure as they apply to the export bounty, but we would like to see the extension of the exemption to cover not only the Commonwealth as such in respect of its employees but also municipal and local government bodies.

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