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Wednesday, 29 October 1941

Senator KEANE (Victoria) (Minister for Trade and Customs) .- I lay on the table by command -

Estimates of Receipts and Expenditure (Revised) and Estimates of Expenditure for Additions, New Works, Buildings, &c. (Revised), for the year ending the 30th June, 1942.

Budget l941-42 (Revised) - Papers presented by the Honorable J. B. Chifley, M.P., in connexion with the revision of the Budget of 1941-42 and move -

That the papers be printed.

When the Treasurer (Mr. Chifley) delivered his financial statement in the House of Representatives to-day he indicated that the Government would carry out its duty to the country with determination and with all the capacity at its command. In view of the limited time available for an examination of the previous Government's estimates of expenditure, these have been adopted, with some alterations. The main alterations are the provision for increased pay and allowances of members of the forces, the raising of the maximum rate of invalid and oldage pensions, and increases and extensions of service pensions. The Government will also proceed vigorously with the provision of houses for war workers.

First, as regards our fighting forces, we consider that the proposals of the previous Government for increases in pay and allowances at a cost - mainly in deferred pay - of £6,000,000 per annum, did not satisfactorily fulfil our obligations. The Government has provided increases in active pay and allowances at the rate of £7,300,000 for a full year, and additional deferred pay costing £200,000 per annum. All members of the forces on special force rates of pay will receive an additional1s. a day in active pay. The previous Government's proposed increase of 6d. a day for wives without children has been adopted, and extended to wives with one or more children. The dependants' allowance for the second child will be increased by 6d. a day. In addition, the standard allotment of a member will be increased from 3s. to 3s. 6d. a day. These increases will commence from the next allotment period. Members of the Royal Australian Air Force and Australian Military Force on special force rates serving at operational stations, such as Darwin, will be credited with deferred pay of1s. a day, while so employed. Members of the Royal Australian Air Force, who have been stationed in Australia longer than six months and who later embark for overseas, will be credited retrospectively with deferred pay for their service in Australia in excess of six months at a rate to increase active and deferred pay to that payable for overseas service. These increases involve payments this year of £4,900,000. After deducting £300,000 allowed in the previous Government's budget, the increased provision is £4,600,000.

Invalid and old-age pensions will be increased to 23s. 6d. a week, which includes the 6d. increase which would become payable in January next as a cost of living adjustment. The principle of cost of living adjustments will be retained. For a full year the combined increase will cost £1,771,000, and for the balance of this year, £1,022,000.

Other concessions are provided for invalid and old-age pensioners, including the following: -

(1)   Full invalid pension will be paid where the degree of permanent incapacity is at least 85 per cent. This concession will cost £150,000 per annum and £87,000 for the balance of 1941-42.

(2)   For invalid pensions the Government will adopt the figure of £2 10s. as " adequate maintenance " for an adult in lieu of £1 10s. This proposal, which was provided in the previous Government's budget, will cost £60,000 for a full year and £35,000 for the remainder of this year.

(3)   The Government proposes that certain naturalized British subjects, mainly Syrians and

Lebanese, will in future be entitled to invalid and old-age pensions. The cost will be about £20,000 per annum, or £12,000 this year.

(4)   Other minor matters brought under notice by the Parliamentary Committee on Social Security will also be included in the amending legislation.

In regard to service pensions, the pay-, ment to a single man will be increased to 23s. 6d. a week - an additional 2s. 6d. For a married man, an increase of 5s. will be provided to cover also his wife, whose pension will remain at 18s. Service pensions are also to be extended to ex-soldiers of the Boer "War. These increases and concessions will cost approximately £108,000 per annum, and £59,000 during the remainder of this financial year.

The decisions of the Government involving increased expenditure, after allowing for reductions of £S0,000 in the estimates for the Department of Information and £35,000 for advertising of primary products under the Department of Commerce, result in a net increase of £5,659,000. These alterations increase the estimated total war expenditure from £217,000,000 to £221,485,000, of which £162,485,000 will be expended in Australia and £59,000,000 overseas. In the interests of economy, the Estimates and budget papers are not being reprinted, but Estimates embodying the amendments have been laid on the table and additional budget papers showing the necessary alterations will be circulated.

The financial position may now be summarized thus -




Towards this £160,000,000, on the basis of last year's borrowings, we can expect £66,000,000 from loans for war purposes, leaving £94,000,000 to be raised by increased taxes or increased borrowings over last year's level. Labour's war policy is to expand the war effort to the maximum ; to use all physically fit unemployed, and to divert labour and resources from civil to war purposes for the balance, whilst maintaining the essential living standards of the basic wage family. Prices must be rigidly controlled and private spending limited to the smaller flow of civil goods available. Expansion of credit can be successfully used to finance employment of reserves of manpower in the production of goods and materials. Any increase of the money volume must, however, be accompanied by a corresponding increase of production, and a thorough survey of the reserve man-power field is now in progress.

The task of the Government is therefore to provide for additional taxes on those best able to bear them; a national savings campaign; an appeal for maximum support for war loans and war savings certificates; and such further control and measures needed to divert our resources from civil to war purposes. Additional taxation is proposed which will produce about £29,000,000 in a full year and about £22,000,000 for the balance of this year. A very considerable increase is provided for income tax on higher incomes, which will bring the total rate almost to 18s. in the £1 in the highest taxed State. For individuals, the present rates for income from personal exertion increase progressively up to £1,500. The rate is 10s. in the £1 on income in excess of £1,500. No alteration is proposed in the scale up to £1,500, but thereafter the present rate of progression will be continued up to £2,500, and income in excess of that amount will pay 200d. in the £1. Corresponding changes are proposed for incomes from property, the excess over £2,000 paying 200d. in the £1. In this connexion, tables are being furnished to honorable senators. The increases mentioned are expected to produce £6,000,000 for a full assessment year and £4,500,000 for the balance of 1941-42. In addition, a number of changes are proposed in the method of assessing taxable income. "Where the wife of a taxpayer has a separate income subject to tax, i.e., over £200, this will be added to the husband's taxable income to determine the rates payable by both. Some additional revenue is expected from this change and possible loss of revenue will be avoided where incomes are divided between husband and wife to evade taxation. Dividends received by Australian residents from companies whose profits are derived wholly or partly from outside Australia shall in future be taxable in the hands of the recipients. A small committee may be set up to devise a formula to mitigate any hardships arising from double taxation. The allowance of £50 for dependent children after the first child will be discontinued owing to the introduction of child endowment. This will not involve the disallowance of the present deduction for a child who attained the age of sixteen years during the. year 1940-41. It is proposed to deal equitably with cases where the endowin ent is payable for portion only of the present financial year. At present, where dividends are paid by companies out of Commonwealth loan interest which is taxable at 1930 concessional rates those dividends are taxable in the hands of recipients at the same concessional rates. This concession is proposed to be removed from the recipients of such dividends. The concession will still apply to actual holders - companies and others. Where trusts or settlements are created for the benefit of children who are minors and are unmarried, evasion of tax is to be frustrated by making the trustee liable for the additional tax payable had r.he settlor retained such property. The present deduction for calls paid on shares in mining and afforestation companies is to be discontinued. The profits of a private company are now taxable in full at individual rates either in the hands of the company or its shareholders. This principle will be applied to businesses conducted by partnerships or individuals. At present, when not less than 15 per cent, of the taxable income is required to be retained in the business, a rebate of the excess of the individual's rate over the company rate is allowed. It is proposed to abolish this concession. These proposed amendments to the Income Tax Assessment Act are expected to produce £2,900,000 for the remainder of this financial year and £3,400,000 for a full year. In the case of companies, an increase from 2s. to 3s. is proposed, to yield about £4,500,000, most of which will be collected in 1941-42. The present scale for War-time Company Tax commences at 4 per cent., progressing by 4 per cent, steps for every 1 per cent, in excess of the statutory percentage of 8 per cent, on capital employed, with a maximum of 60 per cent, on total profits in excess of 22 per cent, on capital employed. The Government's proposals provide for a statutory percentage of 4 per cent, instead of 8 per Gent., and for the commencing rate to be 6 per cent., increasing by steps of 6 per cent, until a maximum of 78 .per cent, is reached on taxable profits in excess of 16 per cent, on capital employed. These amendments will increase the present yield of £1,000,000 by £4,750,000 per annum, and produce an additional £4,000,000 during this financial year. Estate duty on estates of over £20,000 is to be increased on a sliding scale to a maximum of 27 per cent, at £500,000, instead of 20 per cent., as at present. In a full year £650,000 is expected from this increase, but little additional revenue is expected this financial year. Gift duty will be imposed upon gifts of money or transfers of property for which the consideration is inadequate. In addition to raising revenue, this will also control dispersions of property which are made to avoid other taxation thereon. The rates will be substantially the same as those for estate duty, and will be based on the aggregate value of the donor's gifts within a period of five years. Exemptions are proposed to be allowed for retiring allowances and pensions to employees, also gifts for public, charitable, religious, educational, patriotic and defence purposes. This proposal is expected to raise £250,000 during the remainder of 1941-42 and £500,000 for a full year. Land tax is to be increased by 20 per cent, by a super tax, which will apply only where the taxable balance exceeds an unimproved value of £20,000. About £500,000 additional revenue will be collected in a full year and practically the same amount this financial year. Extra revenue is to be obtained from sales tax, but goods at present exempted will not be affected. The special fields at present taxed at 5 per cent, and 15 per cent, will generally be taxed at 10 per cent, and 20 per cent, respectively. The general rate of 10 per cent, will be retained, subject to certain transfers to the 20 per cent, field. Additional revenue of £1,900,000 is expected from these changes during the remainder of 1941-42 and £3,300,000 in a full year.

Postal and telephone charges are to be increased as follows to produce an additional £1,500,000 during the remainder of this financial year and £2,000,000 for a full year: -

(1)   War postage tax of id. in addition to normal rates on all postal articles except mail matter to and from members of the fighting services, air-mail letters to addresses abroad, and parcels.

(2)   Increased telephone rentals varying from 5s. to 15s. per annum, an additional Jd. for local calls, and increases on a sliding scale on trunk calls exceeding 25 miles.

Certain increases of customs and excise duties are proposed, which are expected to yield additional revenue of £2,350,000 during the remainder of 1941-42, and £3,500,000 in a full year. Details will be made available at a later stage.

All these increases of taxes and charges are expected to provide this financial year an additional £22,400,000, of which £5,750,000 is indirect taxation and £16,650,000- direct taxation. The total estimated revenue for 1941-42 will, therefore, be increased from £163,227,000 to £185,627,000.

The revenue' budget may, therefore, be summarized as follows : -

The ' estimated total war expenditure of £221,485,000 is to be financed as follows: - Prom cash balances at the beginning of the year, £2,229,000; from revenue, £82,147,000; and from loans, £137,109,000.

I now refer briefly to other aspects of the Government's financial policy. For our rural industries, the existing machinery for debt adjustment and for. the transfer of farmers from marginal areas will be speeded up. A meeting of Commonwealth and State Ministers will examine these matters early next month.

A bill will also be submitted early in the new year to establish a mortgage bank.

With regard to banking policy, the Government will introduce regulations to license trading banks with a view to preventing expansion of credit by those banks arising out of increased funds due to war conditions. The licences will include provisions that a licensed bank shall-

(a)   hold on deposit with the Commonwealth Bank its excess investable funds on a basis to be determined by the Treasurer after fully discussing the matter with the Commonwealth Bank;

(b)   publish accounts and balancesheets at intervals and in forms prescribed by the Treasurer;

(c)   furnish to the Treasurer, through the Commonwealth Bank, such statements in respect of their business as the Treasurer directs, and to the Commonwealth Bank such statements as thebank directs ; and

(d)   enable the Auditor-General to investigate and report upon the affairs of the bank periodically, or as directed by the Treasurer.

In order to assist war production, the Commonwealth has guaranteed certain overdrafts of several private manufacturers with trading banks. In future, this financial assistance will be provided by the Commonwealth Bank.

TheGovernmenthas recently been reviewing the administration of price control, and is determined to limit the scope for profiteering and to tax excess profits wherever they occur.

In conclusion, the Government asks for the co-operation and constructive advice of the whole community, and particularly appeals to industrial organizations to keep the wheels of industry moving. The Government has dealt with the financial problem as it now exists, but the war situation is changing rapidly. A review of the budget position willbe made early in the new year, and a supplementary budget brought down to provide for any additional finance which may be necessary.

Debate (on motion by Senator McLeay) adjourned.

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