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Wednesday, 15 September 1971
Page: 1337

Mr HUGHES (Berowra) - This Budget debate is now in its penultimate day, and were I to attempt to expatiate on the grand strategy of the Budget for the purpose either of commending it or of criticising it, I should imagine that very quickly there would be fewer members in the House than there are at present. I think that the time has passed when any useful contribution to the debate can be made by dealing with the Budget broadly. At the outset of my remarks I would like to say something about the amendment that was moved weeks ago by the Leader of the Opposition (Mr Whitlam). The proposed amendment seeks to criticise the Government for the alleged reason that the Budget contains no proposals to balance the finances and functions of the Commonwealth, the States and local government.

All I can say about that part of the amendment is that it seems to have been proposed in a sort of mental vacuum on the part of the Opposition, ft completely ignores the significant consequences of the 1970 and 1971 Premiers Conferences. To say now that the Commonwealth Government has made no significant steps towards resolving some of the great problems of Commonwealth-State financial relationships is to beat the air with an utterly fanciful proposition. The position is best summarised by a passage in the second reading speech of the Treasurer (Mr Snedden) in which the honourable gentleman, when referring to the outcome of the 1970 and 1971 Premiers Conferences, said:

Recent developments have led to a significant improvement in Commonwealth-State financial arrangements. The new grants formula settled in June 1970 is increasing State revenues considerably.

It is important to bear in mind when one is considering the validity of the amendment moved by the Leader of the Opposition that the effect of the arrangements made at those 2 Conferences - part of which arrangements is to be carried into effect by this Bill - is to increase State revenues at a substantially faster rate than Commonwealth expenditures will be increasing in this year. The precise figures are set out in the second reading speech of the Treasurer. I will not travel over that ground again. It is important to bear in mind that under the arrangements that have been made and that are proposed, Commonwealth expenditures will not increase at the same rate as State expenditures will be able to increase in the current financial year. So much for my remarks on the amendment moved by the Leader of the Opposition. There is much more that one could say, but many people have said it better than I would be able to say it.

I want to address my remarks to one aspect of the Budget proposals that may not so far have received a great deal of attention. In his second reading speech the Treasurer announced that part of the Budget proposals consists of a decision by the Government to increase from $300 to $400 per annum the maximum deduction allowable to a taxpayer for the education expenses of a dependent full time student child. It is interesting by way of background to recall the history of concessional deductions for education expenses. The idea originated in the Budget of 19S2 when, for the first time, a concessional deduction was allowed for education expenses of dependent children. The deduction was then fixed at £50; that is to say, $100. The figure stood at that amount until 1965, when it was increased to $300. Now, 6 years later, the figure is to be increased from $300 to $400.

I want to say at the outset that, considered by itself, the proposed increase is thoroughly justifiable. It goes without saying that the cost to parents of educating their children, particularly at independent schools, has risen in the last 6 years much more sharply than will be fully allowed for by means of the increase of $100 proposed in this Budget. So the fact that there is an increase is, in itself and considered by itself, a good thing. The time has come when the Government ought to be turning its mind to some of the questions of principle involved in the idea of granting a concessional deduction in respect of particular expenses of a taxpayer. In the main the question of principle falls to be considered with reference to concessional deductions for education expenses and concessional deductions for medical expenses. I understand that the Commissioner of Taxation has for some time past been conducting his own review of various aspects of our taxation system, particularly our income tax system. As I said a moment ago, I think it is time that we turned our minds to this quite important question of principle - that is, whether concessional deductions for education expenses and medical expenses serve to create a situation of equity as between all taxpayers. I understand it to be the essence of any good system of taxation of people's incomes that the tax should be progressive rather than regressive. There is, of course, considerable room in other fields of taxation for those types of tax that are called regressive taxes - taxes that hit every taxpayer, whether he be on a small income or a large income, by the same amount or to the same extent, so that the burden falls more heavily on a person on a low income than it does on a person on a high income. Sales tax is a prime example of this.

There is room in any system of taxation, if one is to consider the necessity of controlling the economy by fiscal means, for a degree of regressive taxation. But when we come to the field of income tax I believe quite firmly that we should as far as possible seek to preserve this system as a progressive system of taxation. I use the word 'progressive' in a special sense, meaning that the burden of taxes will fall most heavily upon those who can best afford to pay them. The trouble that I experience in my mind about the system of concessional deductions, especially in relation to education expenses, is that that form of deduction does introduce into what should be as far as possible a progressive system of taxation a regressive element for the reason that the advantage of the concessional deduction is far greater for the man on a high income than it is for a man on a low income.

The position can very easily be illustrated by reference to some figures. I confess that these figures are not altogether up to date but they will serve for the purposes of illustration. The advantage of a concessional deduction of $400 for a taxpayer with a returned income for tax purposes of $9,000 is $205. That is what he saves in tax by claiming a concessional deduction of $400. If he has an income of only $4,000 the taxpayer who claims a concessional deduction of $400 will save only $131 in tax. On the other hand, taking as an example those nearer to the higher end of the income scale, a taxpayer on a returned income before tax of $30,000 will save in tax by claiming a concessional deduction of $400 no less than $259. I hasten to say that these figures are based on the general rate of income tax unaffected by the special levy of 2i per cent which in this Budget becomes a special levy of 5 per cent.

The point I want to make is this: We ought to be looking for some alternative means other than a concessional deduction which will serve to equalise the person on a low income vis-a-vis the taxpayer on a high income. There is an essential inequity in the present system and what I would propose is not the total abolition of the concessional deduction for education expenses; rather would I propose that there be introduced into the law a provision whereby the taxpayer is given the option of claiming a rebate of tax in respect of education expenses incurred by him up to a certain amount of money so that with 2 options open to taxpayers the man on the high income can opt to take the concessional deduction and so save himself tax. In the case of the man on $30,000 a year he would save approximately $260. I am picking this figure out of the air - the selection of the figure would be a matter of fine judgment and would require a lot of detailed work. A man on a low income should be allowed to claim, say, a rebate of tax in respect of education expenses to a sum of S200 or S250. It is only by introducing some alternative such as I have proposed that we will introduce a necessary degree of equity into this part of our taxation system.

Why is it important that we should turn our minds to this sort of problem at this time? If we believe, as honourable members on this side of the House certainly believe, in the virtues of a free enterprise society - perhaps those virtues are not practised now as much as they ought to be - and if we believe that a healthy diversity comes from the institution which is known as a pluralist society, the Government should be encouraging individuals in the community to be self-reliant wherever possible in relation to such activities as the education of their children. There is no harm, as 1 see it, and there is great good, as I see it, in encouraging the maintenance and the promotion of a viable independent school system - not fostering it or encouraging it to the detriment of the public sector of education. The aim should be to see as far as government can possibly do so that both systems - the private system and the independent system - work side by side in their different ways with their different techniques to the general community advantage. Therefore it seems to me it should be a prime task of government in the field of education to encourage parents to invest in the education of their children in the independent school system if that be their will. lt seems to me that it is also important that the independent school system should not become the preserve of a thin upper crust of the children of very high income earners. It seems to me therefore that if we were to implement the broad idea I have tried to put to the House of giving an option in respect of education expenses to the taxpayer on a lower income we would be doing something to foster the best elements in the independent school system. We would be encouraging parents not to rely on the State at all times, which they are entitled to do if they wish in relation to the education of their children. The creation of this option would give to the parents on lower incomes an opportunity which they are perhaps now denied under the simple system - the regressive system - of concessional deductions. I think it is important that the Commonwealth Government should take the initiative as soon as possible in this field. I think it is important for the Commonwealth Government to turn its attention very quickly towards using the taxation system in aid of the independent school system. It will not of course be used solely in aid of the independent school system because it must be borne in mind that parents of children at government schools are entitled to claim a concessional deduction in respect of incidental expenses arising from the education of their children at those schools.

We on this side of the House must remember that in 1969 a great initiative was taken with the avowed aim of enabling the independent schools to continue in the future to provide the services that they ought to be able to provide to maintain a healthy national condition in the education of the children of this country. The House will remember that the initiative that was taken in 1969 was to provide for the first time at Commonwealth level per capita grants of $50 in the case of secondary school students and $35 in the case of primary school students. It seems to me that in a real world any government must bear in mind that once you enter the field of giving direct assistance to a particular purpose or to a body of people it is not practicable and it ought not to be practic able to retire from the field or refuse to keep the payments up to a realistic level. However, it is perfectly plain that by reason of greatly increased financial assistance given to the States this Government has taken the view that the States from now on can undertake more of the responsibility of making per capita grants to parents of children in independent schools in aid of the education of those children. That may be an arguably good view. However, I happen to know that the failure of the Government to make increased provision by way of per capita grants in this year's Budget has been received with great regret and, indeed, dissatisfaction amongst important sectors of the community and I can understand their view. Therefore, if this position is to be remedied, the Government should act and act quickly within the framework of the taxation system to make it possible for people on lower incomes, if they so desire, to keep their children in independent schools. This can be done by the alternative I have proposed.

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