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Tuesday, 14 May 1957

Mr OSBORNE (Evans) (Minister for Air) . - I wish to discuss only the limited matter of the arguments that have been advanced during the consideration of this clause, principally by Government supporters, in support of the suggestion that pay received for voluntary part-time military service should not be subject to income tax. I know that the view that such pay should not be taxable is very widely held among men serving in the Citizen Military Forces and in the reserves of the three services. I consider that opinion to be erroneously held, and I believe that it would be useful for me to state the arguments against exempting such pay from income tax.

Mr Timson - Does the Minister refer to pay for service in the Citizen Military Forces?

Mr OSBORNE - Yes. I think that many thoughtful people have heard only the arguments in favour of exemption, and have not considered the reasons why this pay is not exempted from income tax. The basis of the whole argument for exempting C.M.F. pay from income tax is that men serving in the C.M.F. are engaging in a voluntary activity which is of very great value to the community. There is no doubt about that. For years after World War II., until I was given responsibilities which no longer allowed me time to serve in the citizen forces regularly, I annually trained in the Naval Reserve. For that training, I received pay which was by no means an inconsiderable addition to my income. I have mentioned that merely to indicate that I personally am well aware of the claims for the exemption of this pay from income tax.

As I have said, the argument advanced is that the service for which the pay is received is of very great national importance, and that it should be encouraged. It is argued that one way to encourage it is to exempt from income tax the pay received for such service. The first answer to that argument is that exemption from income tax is not a proper reward for important and valuable service to the community. If exemption begins there, where will it stop? One might ask whether a similar exemption should be extended to church workers, to social workers, and to people who engage in scientific work for the benefit of mankind.

One can think of a wide range of voluntary activities which are of great value to the community. Service in the C.M.F. is one of them. The second argument against exemption is that it is hardly appropriate to choose a means of rewarding voluntary service, which considerably benefits the well-to-do and gives no benefit to the man of very small means. Let us consider the position of an apprentice, who receives a very small weekly income. His service is no less valuable to the community than that of a business or professional man with a large income, or that of a land-holder who receives a large income from property. The service of all is of equal value to the community. Exemption from income tax would be of considerable value to a man with a large income, but would be of virtually no value to an apprentice with a small income.

The argument in support of the exemption of C.M.F. pay from income tax is supported, in the minds of many members of the C.M.F., by the idea that the military pay puts them into a higher income tax bracket where the rate of tax on their whole income is higher. That is a completely fallacious argument, because the income tax laws are so drafted that no one can be worse off because he earns more. I do not want to weary the committee, most members of which are already well aware of the position, with a detailed explanation. I shall say only that a man with a taxable income of £500 a year pays a certain rate of tax. A man with a taxable income of £5,000 a year pays exactly the same rate of income tax on the first £500 of his income, and the rate is progressively increased on a graduated scale. Therefore, it is not possible, under our taxation law, for a man to become worse off because his C.M.F. pay increases his income and he pays a higher rate of tax on his total income than he would have paid on his income without the addition of military pay.

Let me return now to where I began. I fully recognize, as I am sure do members of the Government generally, the great national importance of voluntary service in the C.M.F. We recognize the need to encourage it, but the suggestion that C.M.F. pay should be exempted from income tax has no logical foundation, as I have explained. Some members of the C.M.F. have told me that they are out-of-pocket because they have to meet the expenses of travel, of unit mess subscriptions, and the like. I think that they would be on very much better ground if they were to examine the idea of relieving themselves of undue income tax liability by having those expenses allowed as deductions instead of claiming total exemption of C.M.F. pay from income tax, because such a claim, as I have stated, has no logical foundation.

Progress reported.

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