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Thursday, 8 December 1927

Senator NEEDHAM (Western Australia) .- Whilst I. listened yesterday to the speech that was delivered by the Leader of the Senate (Senator Sir George. Pearce) in moving the motion for the second reading of this bill, I almost visualized the Federal Treasurer (Dr. Earle Page) as a political Santa Claus with a basket full of toys in the shape of concessions and reductions of income tax; but, having perused the bill, I am beginning to realize that the toys are not so beautiful as the right honorable gentleman would have us believe they are. I think I shall be able to prove that this measure is not such a valuable addition to our legislation as it would appear to be at first blush. Since 1915 we have had brought down each year taxation measures of every description. Up to date the Commonwealth Parliament has dealt with 44 measures relating to income tax, land tax, war time profits tax, &c. Those measures, as the Leader of the Senate said yester. day, are both intricate and technical, and j it is most difficult for a layman such as I am to grasp every detail. In his budget speech the Treasurer ! states that a 10 per cent, reduction on incomes derived from personal exertion is contemplated. He estimates that this year £9,800,000 will be derived from the taxation of incomes as against £11,126,000 received in 1926-27- a reduction of £1,326,000. I desire to refer to two phases of this question - first, the wisdom or otherwise of the proposed reduction; and, secondly, who will benefit by it. It has been contended, both in the public press of Australia and in this Parliament, that the Commonwealth should vacate forthwith the field of direct taxation.

Senator Ogden - It would be better if the Commonwealth were the sole collector of income, tax.

Senator NEEDHAM - I should not like to see the Commonwealth vacate the field of direct taxation, In view of our unsatisfactory financial position it would be wrong to do so. Federal income tax was first imposed in 1915 in order to finance the war. Although many years have elapsed' since the termination of the war, we have not discharged our obligations in connexion with it. Honorable senators will agree that it is just as incumbent upon us to liquidate our debts now as it was in 1915. We may be told that since 1922 our war debt has been reduced by £36,000,000. I do not question that statement, but during the same period " other debts " have increased by, approximately, £39,000,000; and that amount not include loans obtained on behalf of the States, concerning which we have heard so much from Senator Crawford. On the 30th June, 1927, notwithstanding the reduction which has been mentioned, our war debt was still £296,905,000. Which section of the. community benefited most as a result of the war? It certainly was not that section which is dependent entirely on the sale of its labour - men who depend on their weekly wage. The war benefited those persons in the community who were already in possession of much of this world's goods.

Senator Herbert Hays - Why raise that question ?

Senator NEEDHAM - Persons already possessed of considerable! wealth gained most from the war. Notwithstanding the heavy war obligations which still remain, it is now proposed to grant further concessions to many who, to a great extent, amassed their wealth as the result of the shedding of human blood. Surely it is not asking too much that those who benefited most from the war should continue to help pay the debt incurred in connexion with it. On this subject the present Treasurer had something to say in 1920. Speaking on the budget, on the 13th October of that year, the honorable gentleman, as reported in Hansard, page 5565, said -

I make no complaint of the incidence of taxation. I do not complain of its being high, because, in my view, now is the time when we should tax ourselves with the object of reducing our public debt.

Since he made that statement, Dr. Page has become Treasurer, but during his term of office the position has not improved. In 1921-22, the amount derived from the taxation of incomes was £16,790,000. This year the Treasurer expects to collect from that source £9,800,000, a difference of, approximately, £7,000,000.

Senator Payne - Surely the honorable senator is not complaining about that reduction

Senator NEEDHAM - I am pointing out that the reduction will benefit only that section of the community which can well afford to pay the present taxes.

Senator Payne - Other sections of the community will be entirely relieved of taxation.

Senator NEEDHAM - If the Treasurer had collected income tax each year on the same basis that he adopted for the year 1921-22 it would have placed an additional £34,000,000, including the estimate for the current financial year, in the coffers of the Commonwealth, and that amount could have been used to reduce our war debt.

Senator Sir Henry Barwell - It is better in the pockets of the people.

Senator NEEDHAM - In case honorable senators are of the opinion that the taxation imposed in 1921-22 was too great a burden on the wealthier sections of the community, I invite them to consider the position in Great Britain, and what has been done there in the way of reducing the war debt. During the last five years the war debt of Great Britain has been reduced by £586,000,000. The last budget introduced into the British Parliament provided for a reduction o.t income tax to the extent of 4s. in the fi. Even allowing for that considerable reduction, the taxation per head in the United Kingdom, is still £15 5s. 9d., as compared with £3 lis. 4d., in 1914. Those figures show clearly the big effort being made by the people of Britain to reduce their war indebtedness. Australia's gross debt in: 1922 was £416,000,000; to-day it is £461,000,000, an increase of £45,000,000 in five years. Our net debt has also in creased during that period from £339,000,000 to £341,000,000. Australia is therefore in a worse position financially than was the case five years ago. Moreover, our interest bill, which in 1921-22/ amounted to £18,976,000, is estimated this year to reach £21,539,000 - an increase of £2,563,000.

Now let us consider who will benefit from these reductions in taxation. During the term of office of the present .Treasurer, there has been a tendency to reduce direct taxation, while at the same time indirect taxation has increased. During the last election campaign, the Treasurer pointed with pride to the reductions in direct taxation which had taken place since he became Treasurer. The community as a whole has not benefited from those reductions.

Senator Sir Henry Barwell - The workers have not suffered as a result of increased indirect taxation, because their wages have been increased to meet it.

Senator NEEDHAM - The community generally has been penalized by the huge increases that have taken place in indirect taxation during the last five years. Take the case of men who earn a wage of £6 a week. According to the statistician's figures, 90 per cent, of them are the fathers of children under 14 years of age. I ask honorable senators opposite whether these men will benefit by the proposed reduction in income taxation, and whether they have benefited by the increase in indirect taxation. The answer must be in the negative. In 1921-22 the revenue from indirect taxation was £27,630,000, and in 1926-27 £43,552,000, or an increase of approximately £16,000,000. In 1921-22 the revenue received from direct taxation was £22,000,000, and in 1926-27 £15,442,000, or a reduction of approximately £6,550,000. It will be seen that while the taxation on personal exertion has been reduced by that amount during the last five years, benefiting the rich man only, the indirect taxation, which chiefly affects the workers, has been increased by more that double during that period. The Leader of the Country party (Dr. Earle Page), speaking on 12th October, 1922, stated -

The electors must know, . and will know as far as lies in the power of the Country party *to inform them, that the proposed reduction in taxation cannot continue unless there is a permanent reduction in the cost of government.

I ask honorable senators of the Country party to show any reduction in the cost of government since their leader has been Treasurer of the Commonwealth. Why do they not take action to give effect to that doctrine? Since 1921-22 the Commonwealth expenditure has increased from approximately £64,000,000 to £75,000,000. That is abundant evidence that there has been no reduction in the cost of government.

Senator Andrew - Does the Leader of the Opposition object to a reduction of taxation ?

Senator NEEDHAM - Honorable senators are not very enthusiastic on the subject of taxation at all, and they certainly do not wax eloquent about it. I am opposed, to this proposed reduction of taxation, because it assists only those who can well afford to pay taxation, while those in need of assistance receive no benefit at all. I opposed it also because our financial position does not warrant it. The measure now before us is in some respects dissimilar to the original bill when introduced in another place. An important alteration was made to it, mainly, if not wholly, as a result of the vigilance of the Labour opposition in that Chamber. The bill provided that absentee shareholders residing outside Australia would not be required to pay taxation on dividends received from companies operating in Australia; but, on the other hand, shareholders residing in Australia would be taxed.

Senator Sir Henry Barwell - I rise to a point of order. I have carefully examined the bill, and can find no trace of any reference to absentee shareholders. The Leader of the Opposition has admitted that he is dealing with a provision that was eliminated from the original bill in another place, and therefore I submit that his remarks are irrelevant to the subject matter before the Chair.

The PRESIDENT (Senator the Hon. Sir John Newlands). - The Leader of the Opposition, in elaborating his case against the measure, has merely referred incidentally to a clause that was eliminated from it, as originally introduced by another place. I rule that his remarks are in order.

Senat or NEEDHAM. - The intention of that clause was admittedly unfair, and I venture to say that, had it remained in, honorable senators would not have hesitated to eliminate it. Despite the action taken by another place, Senator Kingsmill intends to move an amendment to exempt absentee shareholders from income taxation. The subsection and proviso to the sub-section that he wishes to omit from the principal act read -

(2)   In addition to any other income tax payable by it, a company shall also pay income tax on -

(b)   the interest paid or credited by the company to any person who is an absentee on money raised by debentures of the company and used in Australia or on money lodged at interest in Australia with the company.

Provided that a company shall be entitled to deduct and retain for the use of the company from the amount payable to any of the persons referred to in paragraph (b) of this subsection such amount as is necessary to pay tax which becomes due in respect of that amount.

If Senator Kingsmill's amendment be carried, it will mean, according to the construction that I put upon it, that when debentures are issued by a company, or where money is lodged at interest with a company in Australia, persons resident outside Australia who take up such debentures or lodge such money with companies in Australia, at interest, will not be called upon to pay taxation on the interest they receive; but, on the other hand, a person resident in Australiawho invests his money in a similar manner, will be compelled to pay tax. That, I maintain, would be manifestly unfair. Another clause in the original bill referred to the taxation of dividends to absentee shareholders, and that was also withdrawn. It will be noticed that there is a very close relationship between those clauses and the amendment that has been circulated by Senator Kingsmill. Why should we exempt persons resident outside Australia from taxation on interest or dividends that they receive from Australia when we make our own investors pay such taxation. I see no reason at all for those exemptions from taxation. The Treasurer, when introducing the original bill, said that it would attract outside capital to this country. In his budget speech he also stated that the purpose of continuing the policy of borrowing overseas was to make available more local money for local investments. By his extravagant policy of overseas borrowing he is heaping up the burden of debt on the people of this country; but that, he says, will enable people resident in Australia to invest their money in local concerns! He wants the people to invest money locally; nevertheless he says that they must be taxed on the profits derived from such investments. Then he turns to foreign investors and tells them that if they like to invest their money in Australian concerns, they will escape taxation. We all realize the necessity of obtaining capital to develop our industries and resources; but look at the millions of pounds that have been sent out of this country. Take our gold mines. Let us imagine that they began again to pay huge dividends as they did years ago. The Treasurer has said that we cannot tax absentee shareholders, because they are beyond the jurisdiction of the Commnwealth, but we can tax the companies. Can any argument justify the exemption of the overseas shareholders from paying taxation when the Australian shareholders are forced to pay taxation on their dividends ! I cannot see any justification for such a course, and I consider the Government acted wisely in withdrawing, those provisions from the bill. For these reasons I shall certainly oppose the amendment that Senator Kingsmill intends to move. Prior to the amending act of 1923, there was no provision for a tax on companies with the exception of the tax of 2s. 5d. in the pound on undistributed profits. In 1923, this Parliament imposed a flat rate of ls. in the pound on all profits of companies, and I want to show how it operates. Distributed profits must be included in a person's income, and are taxed accordingly. Some shareholders in companies secure a rebate while others do not, and those who suffer in this respect are the small shareholders dependent for their incomes on the dividends they draw on the shares they hold. Under the present system where a shareholder's income is taxable he is allowed a rebate, but if a shareholder's income is not taxable he receives no rebate. A shareholder, however, must have a taxable rate of ls. in the £ before he can receive the full company rebate of ls. in the £.

Senator Sir George Pearce - How can he get a rebate if he pays no tax?

Senator NEEDHAM - Let me put the matter in another way. Take the case of two people receiving dividends from the same source, the one £1,000 a year, and the other £100 a year. The former pays tax at the rate of ls. in the pound, but as the company has already paid the company tax at the rate of ls. in the pound, he is allowed a rebate of ls. in the pound from the company. As a result he pays no taxation on his direct income. But that cannot happen in the case of the smaller man whose income is only £100 a year. He receives no such rebate. It is also proposed in this bill to extend the averaging 'prin ciple by permitting losses in one year to be carried forward. Under the averaging system an income is averaged over a period of five years, and the average so obtained, as far as I understand this part of the bill, is used not for the purpose of ascertaining the amount on which tax has to be paid, but the rate to be charged upon the taxable income, in respect of any particular year. In other words the system is an averaging of rates and not of income. I have been informed by persons who have made a close study of taxation that a taxpayer with a diminishing income is often taxed more heavily under the present system than one whose regular income is the same as the average of a man with a diminishing income, and that the man with an increasing income will often pay less. It is the opinion of people, well versed in taxation matters, that the fairest basis to adopt is to tax the average income, rather than average the income in order to ascertain the rate applicable to such average, and then apply the rate thus arrived at to the income derived in any 'particular year. Provision is made to allow for expenditure on improvements such as those devised for exterminating various pests, animal and vegetable, the clearing of scrub and so forth. I think it is a very wise provision to make. Honorable senators of the Labour party welcome it. I am pleased to see honorable senators of the Country party smiling, but as a matter of fact in this respect the Government is merely following the good example set by the Labour party, not only in Commonwealth legislation, but also in that introduced by it in various State Parliaments. I shall defer any further criticism I have to offer on the bill until we reach the committee stage.

Senator Sir HENRYBARWELL (South Australia) [4.7]. - I realize that this is largely what might be called a committee measure, and my remarks at this stage will therefore be few and general in character. As a matter of fact I doubt whether I should have spoken now but for certain remarks made in opposition to the bill by the Leader of the Opposition. Before dealing with those remarks I shall refer to some of the benefits that will be conferred by the bill. The Government is to be commended for bringing forward the measure. It is a distinct advance in taxation legislation. Its object is to remove various anomalies and inequities in our Income Tax Assessment Act, and to grant concessions, principally to tracers and primary producers. I quite agree with .the Leader of the Opposition that taxation legislation is highly technical in character, and I suppose that accounts for the honorable senator's failure to make reference to so many provisions contained in the bill. In speaking of the benefits concerned, I shall take, first of all, the averaging system referred to by the Leader of the Opposition in ,his concluding remarks. The bill gives the right to carry forward trade losses made by a taxpayer in one year as a deduction to be made from his assessable income derived in the next four years before his income is assessed for taxation purposes. The system of imposing the tax upon profits without any regard to losses is manifestly unfair, and I quite agree with the remarks of the Leader of the Opposition about its effect on persons with diminishing or increasing incomes. In fact, I believe that cases could be quoted in which taxpayers have paid in taxation over a period of year3 more than they have actually earned in the same period. That system is manifestly inequitable. We have had an averaging period for some time past. At the present time the average annual- income over the five-year period fixes the rate of income tax to be paid. That is a distinct advance over the old system, but a further advance is undoubtedly being made in this bill. The present system does not take into account trade losses made in any one year, and does not allow for a deduction to be made on account of those losses. It is now proposed to allow those losses to be carried forward and deducted from the four-year period, thus giving a greater degree of equity and a certain amount of relief which ought to be given to taxpayers. It seems to me that we ought to endeavour to arrange that the taxpayer who has an irregular income should pay as nearly as possible, the same tax as the man who has a regular income equal to the- average income of the man who has an irregular income over a particular period. I know that it is quite impossible to do it with absolute accuracy. In every system of taxation there are bound to be some inequities, and we shall never have a system that has no anomalies in it; but we should endeavour to approximate equity in our income taxation. Here we are making a distinct advance. No system can be judged over a short period of time; but I believe that the Government has given us an averaging system which will work equitably over a period of years. This concession, as I have already said, will benefit traders and primary producers. Other concessions will be of great benefit to primary producers. The capital of the primary producer is net in the land itself but in the productivity of the land, and that productivity can only be made available or increased by the expenditure of money - in some cases by a considerable expenditure of money. .It seems to me fair that expenditure which is essential in order to increase the productivity of land should be permitted as a deduction in the case of an income tax return. The Minister has pointed out, I think quite rightly, that there is a difference between rural and city land. We get nothing out of city, land by itself, but in the case of rural lands the income is derived from the soil.' They yield income only if their potentialities have been brought out or increased by the expenditure very often of large sums of money. Every one will agree that, in a country like Australia, we should do all we can to encourage primary production. There is no doubt that development has boon retarded in the past partly because of high taxation and partly because the primary producer has not been allowed to make those deductions from assessable income now provided for in this measure. Unlike certain other taxpayers, he i3 unable to pass on income taxation, and, therefore, is entitled to some special consideration. The provisions of the bill, liberalizing deductions for depreciation of machinery and plant will be welcomed, particularly by the man on the land. I understand that it will now be possible to make deductions on account of obsolescence in all cases. That is only fair. The provisions relating to the fixation of prices for wool also will be welcomed. The Minister said yesterday that this will prevent double taxation of the purchaser of sheep in respect of the wool on the sheep. He might have added that it will make possible also the effective taxation of the vendor, who at present escapes. Therefore, this amending measure rectifies two anomalies in the present system - it makes possible the taxation of the vendor as to the value of wool on the sheep, and it prevents double taxation in the case of the purchaser. The concessions granted in respect of gold-mining in the Mandated Territories will bring the provisions applying to New Guinea into line with those that obtain in Australia. The proposal to tax the profits of gold-miners in New Guinea, made recently by the Taxation Department, was undoubtedly unreasonable, and it is re-assuring to know that the Government proposes to rectify the position. . Many other provisions of the measure are designed to benefit industry generally.

I turn now to the remarks of the Leader of the Opposition (Senator Needham). He stated that he doubted the wisdom of a reduction in taxation, and made it perfectly clear that he did not favour any reduction of direct taxation. Evidently the honorable gentleman believes that it will be better for the Government to raise in this way even larger sums than are being obtained at present, instead of making concessions. He thinks that the extra money thus made available should be used for industrial enterprise under government control. I wonder when the Leader of the Opposition and his party will learn the lessen that government control of business activities is foredoomed to failure? I am afraid, however, that it would not be of much use for me to deliver a lecture to the honorable gentleman on that subject. It is far better to give relief to taxpayers so that money which otherwise would be collected by the Treasurer, may be available tor use in industry by private enterprise. The Leader of the Opposition stated that if the taxation burdens were the same to-day as they were in 1921-22, the receipts would be greater by £34,000,000, and he went on to say that he thought that that would be a mighty good thing for Australia. I do not agree with the honorable gentleman. Surely he realizes that industry could not well bear that extra strain. Even now some businesses of_long standing, and which have been regarded as thoroughly sound over a great period of years, are feeling the strain and going under, and there are rumours that others may soon share the same fate. A'l the indications are that the burden at present placed upon industry is as great as it can bear, and that if relief can be given it should be given. The Leader of the Opposition declared also that any benefits following from a reduction in taxation were enjoyed, not by the working man, but- by the wealthier section of the community. Again I disagree with the honorable senator. A reduction in taxation gives an immediate impetus to industry, and undoubtedly the first to benefit is the working man. It is obvious, therefore, that benefits from a reduction in taxation are enjoyed by all sections of the community. Senator Needham referred also to the increases made in indirect taxation during the last few years, and again declared that the burden of high customs duties fell chiefly upon the working classes. Surely he knows as well as I do that any increased indirect taxation which is responsible for .an increase in the cost of living is more than counterbalanced by increases in wages awarded from time to time by the Arbitration Court.

Senator Needham - Nothing of the kind. Increases in wages are a long way behind the increase in. the cost of living..

Senator Sir HENRY BARWELL - I . repeat that any increases in indirect taxation press heavily upon industry generally, and are felt by all sections of the community.

Senator Sir George Pearce - The items that have been responsible for heavy increases in customs revenue, do not include articles in popular use.

Senator Sir HENRYBARWELL.That is so. It is clear that the working classes do not suffer to the same extent as other sections of the community from increases in customs duties. In the Sydney Sun, which reached Canberra this morning, I saw a statement - I do not know whether it was inspired - that the Government intended to launch upon a big economy campaign. This is extremely good news. It is, I believe, the outcome of pressure brought to bear upon the- Ministry by the Chambers of Manufacture and Chambers of Commerce throughout Australia, and by members of another place and of this chamber during the last few weeks. Economy is necessary; but while the Government proposes to cut down expenditure of Government moneys, both from loan and revenue, we have not been told yet if it intends to deal with the root cause of all our difficulties. I refer to our system of arbitration for the fixation of wages. Until this is dealt with the. present economic drift will go on notwithstanding the economies that may be effected by the Government from time to time. Our system of arbitration is responsible for the increased cost of production, the increased cost of living, and for the perpetuation of the vicious circle of which we have heard so much of late. Until Ministers take their courage in both hands, and deal with the situaton as it should be dealt with, it will, not be possible, to arrest permanently the present drift in our financial and economic affairs. However, I am glad to know that there is to be an economy campaign. As I remarked earlier in my speech, this bill is essentially one for the committee. I do not propose, therefore, to consider in detail its various clauses at this stage. I shall reserve what further remarks. I have to make until the measure is in committee.

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