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Thursday, 16 September 1971
Page: 1434

Mr CREAN (Melbourne Ports) - On behalf of the Opposition I indicate that we oppose this legislation because it is our belief that the collection of payroll tax ought to have been retained by the Commonwealth. If the States want additional money as apparently many of them do; by increasing this tax, which will in future be in their hands, from 2± per cent to 3i per cent, on last year's figures this would mean that over $100m will be collected. It is our belief that instead the Commonwealth should increase its reimbursements to the States by that amount. I want to say something about the operation of the payroll tax and the rigmarole or contrivance that is now being used to continue this form of taxation under the control of the States. Payroll tax has never been anything but a Federal tax since its inception in, I think, 1941, when it was introduced by a Labor government. At that time it related to payment of child endowment for the second and subsequent children. As child endowment payments and social service payments generally have been extended there is no longer a direct connection between payroll tax and the payment of child endowment.

Payroll tax has become part of the revenue system of the Commonwealth. Last year about $300m was collected in payroll tax. As we all know there is considerable dissatisfaction from time to time on the part of the States over the reimbursement of money paid to them by the Commonwealth. We all know that the most significant tax - income tax - as it is imposed on individuals and companies, resides solely with the Commonwealth. There seems to be no intention on the part of this Government to relinquish it. It is the platform of the Australian Labor Party that income tax on individuals and companies should remain with the Commonwealth. At least we have our policy on this in writing while this Government only has it in the operation of the present system.

I draw the attention of the House to the interesting information about Commonwealth and State financial relations contained in the document 'Commonwealth Payments to or for the States 1971-72' which was tabled in this House with the Budget Papers. That document sets out the history of Commonwealth and State financial relations since the beginning of Federation. There is quite a considerable amount of detail set out in this document which clearly indicates that when the question of the responsibility for the collection of income tax being returned in part to the States was raised the present Government said: 'No go. We will keep it'. On page 13 and subsequent pages in this document there is considerable detail from the time of the 1970 Premiers Conference setting out first the legal challenge on payroll tax. I will say something about this later on. It also refers to the cessation of the receipts duty tax that the States had attempted to levy but which the High Court determined they could not levy because it was in the nature of an excise. There is also a section which deals with the transfer of payroll tax to the States. I want to say something about each of those aspects.

The payroll tax as it applied from 1941 onwards was levied by the Commonwealth on something like two-thirds of the total wages paid in Australia annually. Details on how it is collected are set out in 'Taxation Statistics' published by the Commissioner of Taxation. In this document on page 191 and subsequent pages figures are set out on a monthly basis showing that there are about 58,000 separate payers of payroll tax. That is to say there are about 58,000 firms on whom this tax is imposed. This tax is levied monthly on wages exceeding $ 1,000m or on an annual basis the tax base is something like SI 2,000m. The figures I am quoting are for the year ended 30th June 1970 when the total wage and salary payments in Australia were in the region of $ 18,000m. As I said the payroll tax applies to two-thirds of all wages paid in Australia. The main exception to the imposition of payroll tax is the wages bill for the Commonwealth. Apparently the Commonwealth could not see much logic in imposing a tax which would be payable to itself. All Commonwealth instrumentalities are exempted from this tax. The exemption was not extended to the States or to local government authorities whose wages are subject to payroll tax if in individual instances the annual wage bill exceeds $20,000.

A few minutes ago I took the trouble of telephoning the Victorian Treasury Department because that State is imposing payroll tax and legislation to this effect is now before the Victorian Legislative Assembly. I asked that Department whether it was intended to impose a tax on State undertakings. The reply I received was yes. Apparently the reason for this is that it helps in the collection of statistics. However it will become a rather large bookkeeping exercise. For example, Victoria will collect tax from the payroll of the teachers.

There is still apparently no intention to tax the payroll for Commonwealth employees, even though the States are now imposing this tax. This seems to me to be a rather curious system to say the least. What the States will not do is tax local government authorities. To me this is a sensible move and it is part of the arrangement agreed upon at the 1971 Premiers Conference when it was decided that the States could have control of payroll tax. In essence what the Opposition is saying is really that the same system will operate except that instead of payroll tax being a

Commonwealth tax it will now be a State tax. What is happening is that the reimbursements that the Commonwealth would have made to the States under the old formula are to be reduced by the amount ot the payroll tax at a level of 21 per cent. So again the net effect is nil to start with but the States now have the ability to increase this tax if they want to and they have chosen to increase it by 40 per cent. It has been increased from 2± per cent to 3i per cent. This increase of 40 per cent in the rate of tax should yield, on the basis of collecting $300m a year, something like an additional $120m for the States in a full financial year. It has been said, although I suggest that it is not spelt out clearly, that if the States choose to increase the payroll tax their reimbursement will not be affected and that this is a growth' tax - a pleasant word - which the States will now have and which they can spend as they like. I do not know how this will be ajudged in the end - whether it will be X plus so many dollars instead of just X dollars. This seems to me to be one of the great mysteries in the scheme. We have a practical example of the yield from payroll tax and a theoretical exercise still as to what reimbursment the Commonwealth will make, supposedly ignoring the growth element on the part of the States.

Two or three of the States have imposed the tax already. I understand that in South Australia it has been imposed on the wage bill at the rate of 31 per cent, not at the former rate of 2i per cent. On the basis of this anticipated revenue, South Australia has made considerable improvements in public expenditure, particularly in the field of education. Of course, this shows the very real need of the States for extra reimbursement but it still leaves open to question whether this is the best way of bridging the bill. I do not know whether an additional 1 per cent on the wage bill of South Australian industry is necessarily a healthy thing at this stage of the economy but it certainly is the only device which was open to South Australia, unless the Commonwealth was more generous in its reimbursement.

In 1967 or thereabouts, the State of Victoria challenged the right of the Commonwealth to impose payroll tax on the employees of that State. The High Court ruled in favour of the Commonwealth, suggesting that the Commonwealth did have that right. I do not know whether Sir Henry Bolte took that action to try to have the whole system declared invalid or because he believed that it was a futile thing for the Commonwealth to impose a tax on State instrumentalities. However, he does not seem to have changed this practice now that Victoria has the right to impose this tax. The tax is imposed upon the very organisations on whose behalf Sir Henry Bolte challenged the Commonwealth in the High Court and those organisations must still go through the rigmarole of having a grant paid to them at the beginning of each year and having to return part of it to consolidated revenue by way of payroll tax. Again, 1 leave it to the imagination of people as to whether that is a rational way to conduct one's finances or whether it will salve anybody's conscience. However this is a tax that the States have for themselves. The Opposition still feels that it would have been better had this tax remained the responsibility of the Commonwealth, which could collect the tax, and this is our motive in moving the amendment. This would have been a sounder system administratively. If necessary, this is the sort of tax that could be used as what has been described in public financial discussions as an automatic regulator. If the economy needed to be dampened down the Government could suddenly increase the rate of payroll tax or if it were necessary to stimulate the economy, the tax could be reduced. To my mind, sometimes these are necessary fiscal weapons and now that the States are operating this tax the tax could possibly move in the opposite direction to that which, on a national basis, might be the soundest way to move.

Yesterday a national superannuation scheme was discussed in this House. Whatever may be the obstinacy or obduracy of the Prime Minister (Mr McMahon) in this matter, in the long run such a scheme must be introduced in Australia. Probably the area where it could most easily be applied would be in respect of the contribution from industry and on the basis of the payroll tax system. However, the Commonwealth is handing this tax to the States and the present central administration will be abandoned. I still do not know whether it would not have been preferable - even if the States normally had this right - to have done what used to be done in the past with income tax, when the States were the collectors for the Commonwealth prior to the uniform taxation arrangements. Perhaps the reverse process could have been employed. The Commonwealth could have been the collector of this tax, as it is now, and simply paid the sum collected to the States at the end of each financial year. Provision could be made for some flexibility, which could be arranged each year at the Premiers' Conference and this would apply if a State wanted to increase the rate. The rate might even vary from one State to another, but some flexibility would enable the States to levy part of the tax themselves. lt has been suggested that there may be some constitutional difficulties which would prevent this because whilst there is no doubt that the Commonwealth has the ability to charge such a tax the Constitution is so written that if a tax is imposed, it must be imposed equally throughout the Commonwealth. It could not be 2i per cent in Victoria and 3i per cent in South Australia although, oddly enough, I understand that the rate will be 3i per cent in all States and only 2k per cent in the Australian Capital Territory and the Northern Territory. Apparently if the Commonwealth imposes a limited tax, it can have a limited application. I am not a constitutional lawyer and I do not propose to argue that point. Nevertheless when examined, this seems to be a rigmarole or a contrivance rather than a genuine attempt to provide a growth tax to the States. This tax certainly does grow because it is linked to the wage bills of the States and during the last 2 or 3 years there has been the spectacle of wages rising at the rate of about 10 per cent or 11 per cent a year. The tax base at least will increase each year. Of course, most of that increase is due simply to the effects of inflation in the community and automatically the 2i per cent will be levied on a higher amount than previously and the level of the tax will grow. In addition, there has been superimposed upon it a rise of some 40 per cent in the rate at which it is to be applied and it is likely that about $400m will be collected this year.

The other matter that remains for me to deal with is a rather curious device known as the export rebate scheme. The reason that this is linked to payroll tax is that because Australia has certain contractural obligations under the scheme known as the General Agreement on Tariffs and Trade limits are placed upon those who adhere to GATT as to what they can do in their external trade with respect to concessions on exports. By some curious logic apparently a business undertaking cannot be exempted by subsidy from direct taxation but it can be exempted from the effect of indirect taxation. Payroll tax apparently has been regarded as an indirect tax. Therefore we have this curious contrivance by which instead of directly paying subsidies to industries to increase their exports we allow those industries a rebate of their payroll tax if they achieve a certain level of export performance superior to what was adjudged in a base period. This kind of provision apparently is still to be continued even though the tax no longer will be a Commonwealth tax.

In his second reading speech, the Treasurer stated:

The Bill proposes also to terminate the payroll tax export rebate scheme with effect from the close of the 1970-71 fianancial year. I have already foreshadowed the later introduction of a separate Bill to provide a system of direct grants based on exports until 30th June 1973 when the present rebate scheme was due to expire.

We may describe this as another contrivance necessary at the Commonwealth level in order still to be able to pay the payroll tax rebate even though the Commonwealth no longer collects that payroll tax. Certain other difficulties arise in the transition which are described quite adequately in the document entitled 'Commonwealth Payments To or For the States 1971-72'. Under the heading: Transfer of Payroll Tax to States', the document states:

The Prime Minister indicated that the transfer could only be effected if all the States agreed to take over the tax and to do so on a common date. He said that the Commonwealth would continue to operate the export incentive scheme so as to give exporters the same benefits, based on the payroll tax rate of 2.S per cent, as they enjoyed under the existing scheme. The Commonwealth would continue to impose its own tax in the Territories at the existing rate of 2.5 per cent, with the rate being subject to review in the light of any changes the States might make in their individual rates of tax.

Whether that implies that once the States have legislated to increase the level of payroll tax to 3i per cent the Common wealth also will increase the tax to 3i per cent in its Territories is not specifically stated. But certain other adjustments must be made. The document further states:

After discussion, it was agreed that the tax would be transferred on the basis that the deductions from the States' financial assistance grants in 1971-72 would be less than the amount of payroll tax receivable by them (at the existing 2.5 per cent rate) by:

(a)   An amount of $20m to be distributed between the States in proportion to payroll tax collections in 1971-72 at the rate of 2.S per cent and a further amount, estimated at the time of the Conference at $2.7m, to be distributed between the 4 less populous States so as to bring their allocations to what they, would have been if the amount of $20m had been distributed in proportion to the financial assistance grants.

Whether anybody finds it easy to follow that argument, 1 do not know. I have had to read it 4 or 5 times to understand it. Perhaps, listening to it, honourable members will agree that it does appear to be a conundrum. The document continues:

In addition to the amount, estimated at the time of the Conference at $22.7m, the Commonwealth agreed that it would provide special revenue assistance of $40m in 1971-72 in the form of a. non-recurring grant (see section on 'Other General Revenue Assistance' below).

(b)   An amount equal to the estimated payroll tax payable in respect of non-business activities of local authorities in 1971-72 subsequent to the date of transfer of the tax.

(c)   An amount equal to the administrative expenditure incurred by the States in 1971- 72 as a result of their imposing payroll tax.

All those kinds of complications are necessary because this device was chosen ' to shift what historically had been, and which constitutionally still could be, a Commonwealth tax.

Whether all these proposals are justified in the name - I suppose theoretically - of better Commonwealth-State relationships perhaps boggles the mind somewhat. I still think that the procedure would have been much much tidier if the method of collecting payroll tax had been left as it was and if the Commonwealth had negotiated with the States - separately, if it wished - about giving them a bit extra. However, this was thought to be the best way of doing it. A curious backflow which will follow this action is that if the States do increase payroll tax to 31 per cent the payroll tax paid by businesses will be greater but their taxable incomes will be less as a conse- quence. The Commonwealth also will lose revenue in that the amount on which companies are required to pay company tax of 47i per cent to the Commonwealth will be reduced as a result of the increase in payroll tax.

To my mind, these are the sorts of things that ought to be more clearly thought through when the Commonwealth, in the name of one theory, begins to disturb what has been a sensible enough and practical working arrangement. I can well understand that the States, having been given the right to collect payroll tax and to increase the rate of that tax, must increase it. Again, it is arguable whether that was necessarily the best way of raising another $100m or so in the Australian economy. We have been told on the one hand that the Budget has a certain strategy. Whatever strategy is followed here - and sometimes, to say the least, it is a bit hard to follow - can be nullified to some extent if State government budgets when introduced run in the opposite direction. For reasons of the type that I have illustrated, the Opposition opposes the measures. We do not oppose them because we think that the States should not have additional revenues. We point out that, really, all that is happening is a readjustment and that all that the States have is an ability to impose upon the rest of the community a higher tax in relation to the wages bill.

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