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Thursday, 27 November 1941

Senator KEANE (Victoria) (Minister for Trade and Customs) .- I move -

That the bill be now read a second time.

This bill deals with the rates of income tax to be imposed for the current financial year on individuals and companies. As regards individuals, it is estimated that the increases for which the measure provides will produce an additional £6,000,000 in a full year, and £4,500,000 during the current financial year. Amendments of the Income Tax Assessment Act which have already received the consideration of this chamber will yield a further £2,400,000 for a full year, of which £1,900,000 will be collected during this year. The total additional revenue to be obtained from individual under the Government's income tax proposals is thus £S,400,000, of which £6,400,000 will be collected this year. The bill does not alter the rates of tax payable by individuals whose taxable incomes from personal exertion do not exceed £1,500, or whose incomes from property do not exceed £1,200. It is, however, proposed to increase the rates on incomes above those amounts. In regard to personal exertion incomes, the existing scale provides for a flat rate of tax of 16d. on taxable incomes of from £1 to £400. From that point the rate increases uniformly by one twenty-fifth of a penny for every additional £.1 of income over £400 up to £1,500. With regard to property incomes, the present scale provides for a flat rate of 20d. on each £1 of taxable incomewhere the taxable income does not exceed £400. Thereafter the rate increases progressively by one-twentieth of a penny for every additional £1 of taxable income until the taxable income reaches £1,200. As 1 have already stated, these rates will remain unaltered. In the case of personal exertion incomes, however, it is proposed to continue the progressive increase of one- twenty-fifth of a penny beyond the point of £1,500 to £2,500, where the rate of tax will be 8s. 4d. in the £1. For every £1 of taxable income in excess of £2,500 the rate will be 16s. Sd. With regard to property income the rate of progression of one-twentieth of a penny will be continued until the taxable income reaches £2,000 at which point the rate of tax will be Ss. 4d. in tha £1. For every £1 of taxable income beyond £2,000 the rate will be 16s. Sd.

Honorable senators have before them tables illustrating the effect of the proposed increases from which it will be observed that the increase of tax on incomes of £2,000 from personal exertion is small. For incomes of £3,000 the increase averages about 20 per cent, ov-r the tax at the present rates, with a small variation between States due to the deduction of State income taxes paid. At £5,000 the average increase is approximately 40 per cent., and at £10,000 about 55 per cent. This percentage addition to the tax payable at the present rates continues to increase progressively up to a limit of 66 per cent, on the highest incomes. The tables also disclose the disparity between the amount of federal income tax payable at the existing rates in the various States on equivalent incomes in tha higher ranges. This disparity is accentuated by the increases of the rates. For example, under the proposed rates an income of £5,000 from personal exertion will be subject to federal tax of £2,673 in Victoria, and only £2^,077 in Queensland. The disparity of nearly £600 is a direct result of the variation in the incidence of State income taxation in the several States, and it reflects the effect of the deductions allowed in the federal assessments for State income taxes paid.. The allowance of deductions for State taxes has a tendency to iron out the existing inequalities in the incidence of income taxation levied by the different States, as the highest federal tax is paid in the State with the lowest State taxation, and vice versa. The result of this allowance of State taxes is to bring about a greater degree of equality in the total impact of Federal and State taxation on individuals resident in the different States than would otherwise be the case. In war-time it is imperative that individuals should contribute to the nation's finance to their full strength. To that end, those individuals who reside in tha more lightly taxed States must be prepared and content, for the duration of the war, to relinquish a good deal of tha advantage previously enjoyed by them in comparison with individuals receiving similar incomes in the more highly taxed States. The comparative equalization of the incidence of the combined Federal and State income taxation on the higher incomes, arising from the allowance of State taxes in the federal assessments, is clearly indicated in Part B of the tables circulated amongst honorable senators. The combined totals of Federal and State income taxes payable in the various States on certain specimen incomes are shown therein. At £1,000, the total tax in the highest taxing State is about 20 per cent, greater than in the lowest taxing State. On an income of £3,000, the difference is only about 3 per cent. Owing to the irregularity of the State taxation scales the difference fluctuates in the specimen incomes in excess of £3,000, but it remains at less than 6 per cent.

The limit of federal taxation on high incomes is virtually fixed by the highest taxed State; and consideration of thu weight and incidence of State taxation has been a material factor in devising the proposed federal scale. A maximum of 18s. in the £1 has been taken for the combined Federal and State taxes. Under the proposed scale the combined tax in the highest taxing State will be about 16s. in the £1 for an income of £10,000 with a limit- of 18s. for the highest income. It is recognized that in some cases in the higher ranges of income circumstances may cause the total weight of Federal and State taxation to amount to more than 18s. in the £1. As has already been explained to honorable senators in connexion with the Income Tax Assessment Bill, provision has been made in those cases for an abatement of tax which is designed to limit the total weight of taxation on income to 18s. in the £1. The Commonwealth will abate its proportion of the excess taxation over 18s., and it now rests with the States to abate the balance of the excess.

The rates of tax payable by individuals are not being otherwise altered and, for that reason, I do not propose to enter into a detailed explanation of the various clauses and schedules contained in the bill, as they do not depart from established practice. The tables circulated amongst honorable senators give a sufficiently clear indication of the taxes which will be pay- able by individuals on specimen incomes at the proposed rates, as compared with the taxes payable on similar incomes at the existing rates.

The bill also provides for an increase of the rates of ordinary income tax payable by a company from 2s. to 3s. in the £1. Companies, like individuals, must be prepared to provide more revenue for the successful prosecution of the war, and this increase is justified by reason of the extraordinary demands of war-time finance. It is estimated that the additional revenue due to this increase will amount to £4,500,000. Honorable senators will recognize the necessity for the ever-increasing expenditure on defence requirements, and will approve of the Government's proposals which aw designed for the dual purpose of financing some portion of that expenditure, and restricting the surplus spending power available for the purchase of consumer goods of a non-essential character.

Question resolved in the affirmative.

Bill read a second time.

In committee:

Clauses 1 to 7 agreed to.

Schedules 1 to 4 agreed to.

Fifth Schedule.

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