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Wednesday, 3 June 1942

Senator JAMES McLACHLAN (SOUTH AUSTRALIA) . - It is an old saying that the power to tax is the power to destroy. It is also the power on which to build; and it is through taxation that we build our national structure.Right through the ages taxes, and tax-gatherers, have been far from popular; and they are no more popular to-day. It is certain that they will not be too popular in the future. That, perhaps, explains why measures of this kind give rise to so much difference of opinion. Since the inauguration of federation, much legislation has been placed on our statute-book. However, it would be impossible to find on the statute-book a parallel to this legislation, particularly insofar as it hides its sinister objective. This legisla tion represents a blow at the Constitution. Its real objective is hidden from the public. Usually the title of a bill is a fair index to its purpose. Before a measure is reported from committee, its title is specifically agreed to by the committee as a fair expression of its object. The titles of these measures are misnomers. The principal bill would be more accurately described as a New South Wales benefit bill. Probably, that accounts for the support given to this legislation in the House ofRepresentatives by members who represent electorates in that State. However, honorable senators are under an obligation to consider all legislation submitted to them from the point of view of the States. This is a States House. We are the guardians of State rights. Therefore, the Senate has a very special function to perform in dealing with legislation submitted to it. In passing, I express appreciation of the action taken by you, Mr. President, during the last few days, to maintain the status and dignity of this chamber. I have no doubt that the majority of our people, as well as of members of this Parliament, are in favour of a uniform income tax. I regret, however, that these proposals were not fully considered before being submitted to Parliament. They have been handled very hastily. A special committee was appointed to investigate them and to make recommendations to the Government. It is worthy of note that those recommendations as embodied in these measures are regarded more as the responsibility of that committee than of the Government. That fact was made clear in the House ofRepresentatives a few days ago when, in rejecting an important amendment proposed by the Opposition, the Treasurer (Mr. Chifley) could only advance the argument that the proposal embodied in the amendment had not been recommended by the special committee. He made no mention at all about the Government's view on the matter. Further, when it was expected that one member of that committee would be able to bring argument to bear on that matter, he merely spoke platitudes.

Senator Keane -One cannot box without boxing gloves.

Senator JAMESMcLACHLAN".The honorable senator has put the matter in a nutshell. I repeat that the report on which these measures have been based was prepared too hurriedly. The special committee did not have an opportunity to give the subject the attention it merits.

Senator Allan MacDonald - And it did not hear any evidence.

Senator JAMES McLACHLAN (SOUTH AUSTRALIA) - That is so. The States as a whole are vitally concerned in this matter. If only out of courtesy, the Premiers should have been called together .before the committee prepared its report. Only by such means could the Government possibly hope to win that support which proposals of such importance may merit. I am aware that the Commonwealth's proposals were submitted to the last Conference of Commonwealth and State Ministers; but at that stage the Commonwealth had made up its mind. It was only after the Premiers had unanimously rejected the Commonwealth's proposals that the Prime Minister again met them, and told them that the Commonwealth was resolved to proceed with this legislation, whether the Premiers approved of it or not. In any consideration of taxation, the two aspects of collection and distribution must be dealt with conjointly. Much doubt has been expressed as to the constitutionality of these measures. Senator Spicer, who is a lawyer, has ably given us his views in that respect. As a layman, I do not pretend to he able to deal with the legality of these proposals, but it is clear that opinion amongst lawyers on them is greatly divided. This matter should have been given more consideration because, in the event of the legislation being challenged before the High Court and being ruled as unconstitutional, the result will be financial chaos in Australia. However, the Government in its wisdom or impetuosity - I do not know which - has decided that the proposal must be debated and settled by both Houses of Parliament.

Senator McBride - It will probably be settled by the High Court.

Senator JAMES McLACHLAN (SOUTH AUSTRALIA) - The Senate must decide the issue first. If these bills were solely taxation measures, we could regard them from a different angle, but, as I said, not only the collection, but the distribution of taxation revenue by the Commonwealth is involved. It is futile to talk about uniform taxation unless there are resultant uniform benefits. The Government's proposal is that the States shall receive their fair share of the Commonwealth revenue from income tax after it is collected. I am afraid that the special committee which considered uniform income taxation failed to realize the importance of this aspect of the question. The committee decided to adopt the present Commonwealth formula of income taxation and apply it to the States, and recommended that amounts equivalent to their average income tax collections for 1939-40 and 1940-41 should be paid to them by the Commonwealth. The committee made this decision without fully considering the conditions obtaining in the States. The conditions in each are different. The committee paid no regard to the thrift and careful administration of some States. On the other hand, other States have been guilty of maladministration and extravagance. The committee did not take into account the taxing powers of the States or the conditions peculiar to those States with large areas and those with large populations and wealth. Nor did it take into consideration whether the source of their wealth is mining, manufacture or primary production. Although apparently these considerations were not appreciated by the members of the committee, they are of the utmost importance to those in control of State instrumentalities. I regard this measure as probably '75 per cent, political. 1 admit that there is much to be said in favour of a system of uniform taxation, and one reason is contained in the evidence submitted to the special committee that investigated uniform taxation. The committee in its report consisting of 25 foolscap sheets set out the various forms of taxes levied in the different States. There were about 25 items covering income tax on different kinds of incomes, but there was no uniformity between the Commonweal th and the States on any one item. That shows that there is need for uniform taxation. I shall take the company tax as an example. In NewSouth Wales, the rate of tax is 3s. in the ?1 for resident taxpayers, and 3s. 6d. for non-resident taxpayers; in Victoria, the tax is 3s. in the ?1 ; in Queensland, Is. 9d. to 3s. 3d. on a sliding scale; in Western Australia, 2s. 6d. ; in South Australia, 2s. and in Tasmania the rates are 2s. 3d. up to ?520, 2s. 6d. on ?520 to ?2,500, and 2s. 10-Jd. on higher incomes. I appreciate the argument that a State has the right to tax its citizens in whatever way it thinks fit. The States claim that they should have control of their own revenue, and I think the claim is admitted generally. Under prevailing conditions large amounts of Commonwealth money are being contributed to the States and those States which are fortunate enough to have large government works, such as munitions factories within their borders, are benefiting by the expenditure of a large amount of Commonwealth money. I suppose the Commonwealth is entitled to follow its own money. If that principle is admitted it is one argument in favour of uniform taxation.

I shall now comment on anomalies and injustices of the Commonwealth taxation system, and I think that this is one of the first matters which any committee appointed to examine proposals for uniform taxation proposals should have considered. The committee that was requested by the Government to consider uniform taxation adopted the Commonwealth formula of income taxation, but I think that the committee would have acted wisely if it had given more thought to improvement of the formula before the recommendation was made that it should be applied generally to income tax throughout Australia. The answer might be that the committee did not have the power to recommend alterations, but the fact remains that it did suggest some alterations of the formula. If the committee had examined the present Commonwealth formula, and removed some of the anomalies aud injustices arising from it, a better scheme of uniform taxation and one that would have given greater satisfaction to taxpayers would have been recommended. In my opinion, the Commonwealth formula is defective. I support the view of Senator Spicer that income tax should he levied on some in- comes below ?156 a year, and I agree with him that it would not be a hardship if many persons earning less than ?156 a year were taxed on their incomes and thereby had to contribute even to a small degree to the revenue of their country. I am under the impression that 19,000 taxpayers in South Australia, are relieved of the payment of income tax. At the same time, they enjoy all the privileges and services that are available to citizens who pay income tax. 1 understand that in New Zealand income tax starts on a flat rate which applies up to a certain income level. I believe that the rate is Is. 6d. in the ?1 up to an annual income of ?250. That rate may be too high, on a low income, but I favour the principle adopted in New Zealand. The computation of rates of income tax in Australia is too complicated. Taxation measures are in effect agreements that the people, in return for certain services provided by the Parliament, will contribute to the revenue. Every such agreement should be intelligible to both parties to it, but I am certain that our income tax assessments and returns are not intelligible to many taxpayers. Does any honorable senator who has business interests know the amount of his income tax until he receives his assessment. He does not know, and he cannot work it out unless he is a mathematician. Take the case of a man whose income does not exceed ?200. It is provided that he shall pay Sd. in the ?1 for every ?1 of taxable income over ?156. That is quite plain, but then we find that for eve?-y ?1 of taxable income in excess of ?156, he has to pay 8.12d., increasing uniformly by .12d. for every ?1 by which the taxable income exceeds ?156. That is very difficult to calculate. Surely that could be made a great deal simpler. We find, however, he is further embarrassed by the fact that where the taxable income is less than ?200, the net tax payable shall not exceed one half of the amount by which the taxable income exceeds ?156.

I should like to deal now with the difference between the rates of tax on personal exertion income and property income. In my opinion this difference is most unjust, especially as it applies 10 small incomes. In many cases, people who are obtaining £200 or £300 a year are widows or invalids who have invested their money in property and that is the only source from which they obtain their income. I contend that in such cases the rates should be the same as they are for income from personal exertion.

I shall deal now with the injustice of the company tax. Perhaps injustice is too mild a word ; it is actually highway robbery. Ned Kelly cannot be compared with the person responsible for this imposition.

Senator Collings - -Ned Kelly was not faced with the Japanese.

Senator JAMES McLACHLAN (SOUTH AUSTRALIA) - Although the Japanese are close to Australia justice should be done. Take the case of a person who has £8,000 invested in a company, which has a capital of £400,000, and an annual profit of 8 per cent., or £32,000. The company tax is 6s. in the £1, plus super tax of Is. in the £1 on the amount over £5,000. On these figures the taxation payable by that company would amount to £10,950. In addition, it would have to pay 2s. in the £1 on its undistributed profits. A dividend of 5 per cent, would absorb £20,000 of the balance, leaving £1,050 to be taxed at the rate of 2s. in the £1. That makes the total tax payable by the company £11,055. A person who invested £8,000 in the company would have a fiftieth share in it, and therefore his share of the £32,000 profit would be £640. However, after paying taxes and holding the undistributed capital, the company would pay him £400, on which he would have to pay £71 12s. 6d. by way of property rax, making the total tax paid by him £311 12s. 6d., and leaving him a net income of £328 7s. 6d. In other words, his tax would be practically 10s. in the £1. On the other hand a man earning £400 an annum from personal exertion would pay only £57 10s. by way of income tax, which is only one-fifth of the tax which would be paid by the man who had invested his money in a company such as that mentioned.

The anomalies that exist in regard to distributions to the States are just as great as they are in relation to collections.

The basis of distribution is inequitable and cannot be justified. Some years ago, it was realized that certain States suffered disabilities as the result of federation, and the Commonwealth Grants Commission was set up to examine the matter and evolve a solution. Surely this matter is of sufficient importance to warrant treatment on the same basis. The Leader of the Opposition (Senator McLeay) and Senator Spicer have pointed out quite clearly that New South Wales will derive certain big advantages under this scheme, and there is no need for me to reiterate the arguments advanced by those honorable senators. Virtually the Commonwealth proposes to give to New South Wales £7,000,000 or £8,000,000 to meet the cost of child endowment, unemployment relief and so on, for which that State no longer has the responsibility. The Leader of the Opposition has indicated that he will move an amendment in committee when, no doubt the question will be more thoroughly discussed. It is useless to say that the Commonwealth is returning to the States the amounts collected by them in the base years. That is not good enough, nor would it be good enough if the distributions and collections were the same. -It would not be so bad if the proposal were to return to New South Wales the amount collected from that State, but it is much worse than that. The proposal is to take money from Victoria and other States to make up the grant allocated to Queensland.

I do not propose to discuss these measures from the constitutional aspect, but one must realize there is some doubt as to their legality. I am reminded of the experience of Mr. Aberhart, the Premier of Alberta, when he tried to introduce the Douglas credit system. In order to do so, he considered it necessary to prepare the way, and he decided first to get rid of the private banks. He conceived a plan whereby he could do so by imposing excessive taxes upon them. If the hanks could have been forced to pay those imposts, they would have been taxed out of existence, but they appealed to higher authorities, and the case eventually came before the Privy Council, which ruled that the Parliament of the province of Alberta had not power to pass the proposed legislation. The case was argued, from the premise, not of taxation, but of the objective, and the Privy Council ruled that the purpose of the tax was to put the banks out of existence and to substitute something in their stead. We should ask whether the proposals now before the Senate are designed to raise taxes or to give to the Commonwealth Parliament a grip over the States that it is not likely to relax. Is this proposal an attempt to introduce unification?

Senator Large - Here's hoping!

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