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Wednesday, 8 December 1965

Dr FORBES (Barker) (Minister for the Army) . - Before the second reading debate goes any further, I should like to take the opportunity of indicating the Government's attitude to the amendment foreshadowed by the honorable member for Melbourne Ports (Mr. Crean). The Government is unable to accept the amendment. As is clear from the terms of the amendment, it seeks to exempt from payroll tax wages that are paid by local government authorities and comparable bodies where the wages are not paid in respect of the conduct of a trading enterprise.

This proposal has very serious revenue implications. Indeed, as I shall show, it has serious implications in connection with the basis of Commonwealth-State financial relations. If implemented, it would involve substantial losses of revenue. I remind honorable members that the payroll tax base is a very wide one. Payroll tax is a levy on all employers whose payrolls exceed £10,400 per annum, with the exception of government, vice-regal and. diplomatic establishments, public benevolent and religious institutions, public hospitals. Commonwealth authorities - the wages of which are paid out of the Consoli dated Revenue Fund, as mentioned by the honorable member for Melbourne Ports - and certain international organisations. Honorable members will agree that this makes the payroll tax base a very wide one indeed.

States and their authorities are liable to the tax. On the face of it, the proposal contained in the amendment foreshadowed by the honorable member for Melbourne Ports would seem to be a fairly simple one, but in practice there would be difficulty in defining trading activities and in distinguishing trading from non-trading activities of local authorities. Further, the functions performed by local authorities vary considerably from State to State. If, therefore, the honorable member's proposal were accepted it would be difficult to justify refusing to extend similar exemptions to State Governments and their semigovernmental authorities.

Honorable members will see the point. For example, State authorities in South Australia do not conduct many of the activities which are conducted by local authorities in Queensland. I mention sewerage services by way of illustration. It would therefore be quite inequitable that payroll tax should not be levied on a local authority in Queensland but should be levied on a semi-governmental authority which provides a sewerage service in South Australia. Needless to say, the granting of widespread exemptions of this type would lead to a considerable loss of revenue, and, all other things being equal, the Commonwealth would have to seek to replace this revenue from other sources. It is estimated that the cost for a full year of exempting local government bodies from payroll tax would be of the order of £2.9 million. If the exemption were to be extended to semigovernmental authorities, the cost might be as high as £13 million. Against that last figure I set the estimated payroll tax collection for the current year. As mentioned by the honorable member for Melbourne Ports, it is £82 million. Therefore, the possible loss of revenue to the Commonwealth would be £13 million out of £82 million.

As I have said, this proposal would have serious implications for CommonwealthState financial relations. Under both the 1959 arrangements and those entered into this year, financial assistance grants are being provided to the States expressly on the understanding that there will be no change in the financial arrangements between the Commonwealth on the one hand and the States and their authorities on the other, and, in particular, no change in the liability of the States and their authorities to payroll tax. It was, of course, intended that this understanding would cover local authorities which are constituted under the laws of the States. This was agreed to by the State Premiers at conferences at which the financial assistance arrangements were negotiated. In other words, the financial arrangements between the Commonwealth and the States are based on a specific understanding, arrived at after discussions, that local authorities will pay payroll tax.

The amendment foreshadowed by the honorable member for Melbourne Ports would certainly alter this position. If it led to the granting of wider exemptions, it would seriously prejudice the basis of the arrangements governing financial assistance grants. Honorable members may care to refer to the document " Commonwealth Payments to or for the States, 1965-66", which the Treasurer (Mr. Harold Holt) presented at the time when he presented the last Budget. On pages 14 to 16 of this document, the Treasurer explains the basis of the arrangements governing financial assistance grants. I say this additionally to my point about the discussions which have taken place from time to time between the Commonwealth and the States on the financial assistance arrangements. I regret that when the amendment is ultimately moved the Government will not be able to accept it.

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