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Tuesday, 2 June 1942

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

That the bill be now read a second time.

As I explained to honorable senators when moving the second reading of the Income Tax (War-time Arrangements) Bill, the plan formulated by the Government for the establishment of a single income tax authority will require the passage of four bills. The purpose of this bill, which is one of four measures, is to authorize grants of financial assistance to those States which cooperate with the Commonwealth by refraining from imposing an income tax. The grants are designed to reimburse those States for the loss of revenue they will suffer if State income tax is not imposed. The grant which it is proposed to pay to each State, if it co-operates with the Commonwealth, is set out in the schedule to the bill. An adjustment will, however, be made in respect of any arrears which may be collected by the States. Any such arrears will be deducted from the amounts set out in the schedule. The amounts of compensation to the States have been fixed on the basis recommended by the special taxation committee.

The committee considered various proposals and reached the conclusion that the most equitable basis for compensation to the States would be to pay to each State concerned the approximate average of its income tax collections during the financial years 1939-40 and 1940-41, less the saving to the State in administration costs brought about by the establishment of a uniform single taxing authority. The Government, in taking those two years as a basis, considers that the Commonwealth is extending generous treatment to the States. The State income tax revenue of the two years in question has received the benefit of the increase in the national income brought about by Commonwealth war expenditure. The grants provided to each State are set out in the schedule and are as follows : -


The grants recommended by the committee were slightly different. For New South Wales, the grant recommended by the committee has been reduced by £427,000; for Victoria, by £30,000; and for South Australia, by £8,000. These reductions represent the estimated savings to those States which will flow from the introduction by the Commonwealth of a widows' pensions scheme. For Western Australia, the grant recommended by the committee has been increased by £23,000, as it was found upon re-examination of the matter that the saving in that State's administrative costs would be £23,000 less than the amount which had been estimated at the time the committee prepared its report. In the case of Tasmania, the grant recommended by the committee has been increased by £77,000. This increase is the result of the adoption by the Government of a recommendation of the Commonwealth Grants Commission to which an application for an increased grant was submitted by the Government of Tasmania. The bill contains a provision whereby the grant to any State may be increased upon the recommendation of the commission. Such a provision will meet the circumstances of any State whose revenue requirements may be increased owing to some inescapable increase of its expenditure. In addition to the grants set out in the schedule, the bill provides for further financial assistance to be paid to the States concerned. The amounts of these further grants will be equal to the amounts collected by the States in respect of their income tax arrears during the period of the operation of this measure. It is proposed that these further grants will be paid to the States with interest at the termination of the uniform tax plan.

Honorable senators will appreciate that the revenue collections of any year normally include a substantial amount represented by arrears of previous years' taxes. The proposal to pay this further financial assistance will ensure that the States will receive in the first year in which they again impose income tax, an amount to compensate for the arrears they normally would have collected in that year. Honorable senators may consider that the compensation to the States should be on a per capita basis. Although the needs of the Commonwealth for defence are paramount, the Government recognizes that its plan for a single income tax authority should interfere as little as possible with State finance. The basis of compensation proposed will give to each of the States the same amount of revenue it now enjoys. A per capita basis of compensation would leave the revenue of some States seriously short whilst other States would receive a surplus which they would not require.

The Government introduces this bill a-s an integral part of its uniform income tax plan. In bringing this plan forward, the Government is convinced that it will receive the overwhelming support of the nation as the only means of devoting the resources of the nation to the defence of the nation's resources. It, accordingly, submits the bill to honorable senators with every confidence that it will receive similar support in this chamber.

Debate (on motion by Senator McLeay) adjourned.

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