Note: Where available, the PDF/Word icon below is provided to view the complete and fully formatted document
Wednesday, 30 September 1936

Senator Sir GEORGE PEARCE (Western Australia) (Minister for External Affairs) [3.37].- I move-

That the hill be now read a second time.

This bill is another of the measures introduced to implement the policy of the Government, a3 announced in the budget statement, to grant further exemptions from sales tax to the value of £1,000,000 annually. In announcing its decision to make further concessions, the Government stated that it proposed to follow its established policy of seeking, in the first place, to provide for the exemption of goods which are regarded as the prime necessaries of life, for that policy provides the greatest possible relief to those least able to bear the burden of the tax. Opportunity has also been taken to provide for exemptions which will remove certain anomalies, and simplify the administration of the law. Among the goods to be exempted are those generally referred to as " consumable aids to manufacture" - goods which are used up or consumed in the process of manufacturing other goods. Among the items which may be regarded as necessaries are footwear, and tea, coffee, and cocoa. A few days ago the Leader of the Opposition (Senator Collings) expressed doubt as to whether remissions of sales tax will be passed on to consumers. Since then newspapers published in Victoria, and, it may be, in other States also, have contained announcements that, following the lowering of the rate of the tax, the prices of tea, coffee, and cocoa, will be reduced.

More than one-half of the relief proposed by this bill is represented by those items; out of concessions estimated at £1,000,000 annually £302,000 is in respect of footwear, and £200,000 in respect of tea, coffee, and cocoa. So intensive is the competition in the Australian footwear industry that there is not the slightest doubt that the benefit of any tax concession will eventually be felt by the purchasing public. When selecting items for exemption the Government has had closely in mind the items entering into the Arbitration Court's regimen for the adjustment of the basic wage and in choosing footwear and tea for the principal individual items for exemption, it believes that it is giving relief where it is most needed. When the present list of exemptions becomes effective, the amount of sales tax payable by the average worker on the basic wage will be approximately Id. a day. I give this as an indication of the fact that the Government has been continuously concerned to ensure that the sales tax burden shall fall as lightly as possible upon the sections of the community least able to bear it.

Clothing i3 practically the only field left for the provision of further relief of a similar nature. The possibilities of that field have been explored, but not with very promising results. Apart from the fact that clothing includes articles of luxury as well as articles of necessity, it appears that any attempt to exempt clothing, other than footwear, would be productive of serious commercial and administrative difficulties. Nevertheless, the position of tailors has been specially investigated in response to the many requests made both in and out of Parliament that such persons should be excluded from the field of registered taxpayers. The investigation disclosed many reasons why such requests should not be acceded to. It became clear, for example, that many competitive anomalies would arise, and that there would be forced changes of business methods if all tailors were de-registered. The Government, however, feels that some concessional adjustment in favour of registered tailors is desirable in view of the fact that more than 40 per cent, of the tailors in Australia are unregistered, because their turnovers arc within the exemption limit of £1,000. It is hoped that the reduction of the taxable sale value from 66 per cent, to 50 per cent of the sale price of certain goods sold by registered tailors will materially improve the position, and will go far to remove the competitive inequalities which may at present exist between registered and unregistered tailors.

A most important feature of the bill is the proposed exemption of what may be briefly described as " consumable aids to manufacture." This will involve an annual loss of revenue amounting, at 4 per cent., to £156,000. The bill also contains provision involving £100,000 per annum for the exemption of" lubricating oils and greases, which in many of their uses fall within the category of consumable aids to manufacture. The consumable aids to manufacture dealt with in this bill represent only one of several classes of goods which may be broadly classified in that way. In this broad class, aids to manufacture may be divided roughly into three classes. Broadly, aids to manufacture may be said to be those things which are used in the production of goods, but which do not enter into the finished goods themselves. Factory buildings and the plant therein are, broadly speaking, in this category. Again, jigs, moulds, tools and dies are aids to manufacture - and, finally, there is a wide range of materials, largely chemicals, which are used up or consumed in the course of manufacture. It is to this latter class alone that this hill seeks to give exemption from sales tax. To the manufacturer concerned, these aids are just as much direct charges against his output as are the raw materials which become ingredients of his products. In many cases it is a matter of great difficulty to determine whether they are merely aids to manufacture or whether they are entitled to be treated as raw materials on the ground that they leave some essential element hi the finished product. This has been a constant source of trouble to the Taxation Department and the manufacturers concerned; and the fact that raw materials have been exempted and consumable aids taxable has naturally led to continuous pressure for the exemption of the latter class. In considering the matter of exempting these aids, the trouble has always been, first, the unknown, but necessarily large amount of revenue involved, and, secondly, the apparent impossibility of achieving a satisfactory definition of the classes of goods to be covered. Almost a year ago the Government caused a thorough investigation to be made by the Taxation Department into this complex problem. After the most painstaking inquiries, extending over many months, the department has now arrived at a definition which it is believed will enable a satisfactory exemp- tion to be provided. That definition appears on page 2 of the bill in clause 3 a. If necessary, I shall explain this definition in -detail in the committee stage, and supply information as to the principal items that will be exempted in typical industries, I desire, however, at this stage, to emphasize that the exemption will not apply to any goods which come within the category of machinery, tools, implements or other plant. This should, I think, be made perfectly clear, because I am aware that there are manufacturers who desire exemption of what might be described as " disappearing " tools or other mechanical aids which may, in certain circumstances, be used up with such rapidity that they are just as directly a charge upon output as are consumable aids in the nature of chemicals, &c. In this regard I can only say that the possibility of a practical exemption of "disappearing" tools was rejected only after the most careful and sympathetic consideration. It was found that tools which were rapidly used up in certain circumstances were usually capable of prolonged or indefinite use in other circumstances, and the conclusion was reached that, short of a complete exemption of all manufacturing plant and machinery, any attempt to exempt " disappearing " tools and like aids to manufacture would involve the impracticable task of laying down detailed rules for application to each industry and even for individual manufacturers, with varying methods of production, within a particular industry.

An attempt was made to undertake that task under the Canadian sales tax law, which, for a few years, contained an exemption of all aids to manufacture except permanent plant and equipment. Apparently the attempt failed, for the exemption was repealed in 1933, although an exemption of consumable aids, comparable to the exemption in this bill, was retained. One other important point to note is that the main provision for the exemption of consumable aids to manufacture will be contained in a regulation authorizing registered manufacturers to quote their certificates when purchasing or importing such goods. The established procedure in connexion with the quotation of certificates has been found to be far smoother and more satisfactory than the furnishing of certificates that the goods purchased or imported will be used for specified purposes. The definition in this bill of " aids to manufacture " will be adopted for the purposes of the proposed regulation which will be promulgated on the date of assent to the bill. The exemption in the bill is limited to unregistered manufacturers, and is necessary because such persons are unable to quote registration certificates.

In addition to the various provisions a.1 ready referred to, there will be an exemption of goods manufactured by any person and applied to his own use as aids to manufacture - so long as these aids to manufacture come within the definition in this bill.

Another matter dealt with in the bill concerns the conditions attached to the exemption of certain goods in the presentact. The past practice of granting exemptions that were conditional on the goods being used for some specific purpose, has caused a considerable amount, of trouble and inconvenience - and the opportunity afforded by this bill has been taken to extend the range of the most outstanding and vexatious of these exemptions by making them unconditional. Belief from sales tax to the amount of £104,000 a year will be provided to this end.

The Government proposes to follow the policy of removing the conditions of exemptions wherever that is practicable and whenever revenue requirements permit; and also to avoid as far as possible the provision of further exemptions to which troublesome conditions are attached. The bill contains an important instalment of provisions prepared in pursuance of this policy. The items now selected for the removal pf conditions of exemption constitute the whole of the items which, so far as investigations have gone, can be dealt with in that manner without the creation of new difficulties.

The items mainly affected cover certain classes of goods sold by wholesale hardware merchants who, because of the enormous variety of taxable, exempt and conditionally exempt goods in which they deal, are the worst sufferers from the troubles of conditional exemptions. The main hardware items are: - Piping, glass, copper, muntz metal and lead sheets. The bill provides for the exemptions of those items in all circumstances. Other features are designed to remove competitive anomalies in the various classes of exemptions.

The cases to be provided for have been selected in the course of the careful survey which is being continuously made of the incidence of the sales tax, and of the operation of the sales tax exemptions, and amongst the hundreds of items surveyed, they represent the most outstanding of the anomalies which are capable of correction by way of exemptions.

The following are a few illustrations of the exemptions proposed: -

1.   Butter printing, moulding and wrapping machines. These are exempt when for use by butter manufacturers, but taxable when for use by organizations representing butter manufacturers (e.g., the Queensland Butter Board).

2.   Lines, hooks, &c, for use in the fishing industry. This is designed to place " hooking " ports on a par with " netting " ports, as the latter at present enjoy an exemption of fishing nets, &c.

3.   Dried hops. This is to cover kilndried hops which are in competition with exempt sun-dried hops. Anomalies in all of the other eases provided for are equally clear, and will be fully explained, if necessary, in the committee stage.

In order to give full and prompt publicity in future to the effect of the sales tax law, an official publication entitled

The Sales Tax Law1930-1935 was published at the beginning of the present month. This book, with a supplement which was published at the same time and a few supplementary rulings which have since been published, is a complete and up-to-date consolidation of official rulings on the sales tax law. It replaces the official sales tax hand-books already issued. The exemptions ,are contained in a separate section which not only sets out the exemptions and rulings thereon, according to the classifications of the schedule to the Sales Tax Exemptions Act, but also shows the progressive development of the exemptions from the 1st August, 1930, with rulings on the exemptions as in force at the various stages. All sales tax, and other associated acts .and regulations, as consolidated to date, are also included, in the book.

Arrangements to keep the book uptodate include the prompt and regular publication of supplementary rulings, free of charge to purchasers of the book; and the publication of an annual supplement' at the beginning of each year, containing a consolidation of all rulings not contained in the main book as well aa a consolidation of the acts and regulations as they stand at the date of the supplement. These supplements will be sold at about cost price. It is hoped that taxpayers and other people interested will take advantage of these publicity arrangements. I believe that the proposals contained in this bill will be acceptable to Parliament, taxpayers, and the taxpaying community generally. They are the result of a great deal of close investigation over the last twelve months by the officers of the Taxation Department, in an effort to improve the sales tax legislation in the interests of all concerned.

Many hundreds of claims have been considered during the preparation of the bill, and honorable senators are assured that all proposals that have been put forward have received the most careful consideration. I would point out to honorable senators who may have in mind proposals for additional exemptions that experience has proved that it is against the interests of commerce and of the general community to provide for exemptions without the most careful investigation of their competitive, commercial, and administrative consequences, and without also the most careful preparation of their terms. In urging honorable senators to refrain from submitting amendments at this juncture, I give the assurance that any requests for further exemptions will be carefully noted for investigation and. future consideration. I commend the bill to the Senate.

Suggest corrections