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Wednesday, 27 September 1972
Page: 1241

Senator GUILFOYLE (Victoria) - I relate my remarks to the 2 Income Tax Bills - the Income Tax Bill 1972 and the Income Tax Assessment Bill (No. 5) 1972 - which arc being discussed as cognate measures in this debate. Firstly I refer to the Income Tax Bill 1972, the purpose of which is to declare the rates of income tax for the year 1972-73 at the rates referred to in the Budget Speech of the Treasurer (Mr Snedden) for this year. These rates were to take effect from 1st September. They were to give effect to a reduction of personal income tax by an average of some 10 per cent. The new scale will apply free of any additional levy at all such as the rate of 2i per cent or 5 per cent which we have, seen in the past. These new rates will give an effective reduction at the previous rate of tax of some $3 80m for this year or $480m in a full year.

As the stated objective of the Budget was to create an expansionary situation for consumer spending, it is noteworthy that these reductions in personal income tax will release some personal spending capacity into the economy. I welcome these reductions for another reason because for a very long time it has been felt that personal income tax rates on a rising scale as applied to income have been high and in many cases have been disproportionate. A higher proportion of income paid in tax by the lower income earners is now applied than would have applied, say. 10 years ago. 1 think in the management and professional classes of income earner this is extremely disproportionate.

There are some examples which I would like to state with regard to the application of the new rates. Perhaps I could pick at random differing income levels and describe the effect of these reductions. Firstly 1 would like to instance a person who has an annual income of S3, 484 and has no deductions except for those of dependants. If this taxpayer had no dependants we would find that the application of the new rates would give him a reduction of $71.60 or 13.2 per cent in income tax rales for this current year. If he had a wife and 2 dependent children he would have a reduction of $82.15 or 22.3 per cent in the year. If he had 4 dependent children and a wife he would have a reduction of $8S.88 or 29.8 per cent in tax payable.

If we move to the income scale of $5,096 per annum, we find that a taxpayer with a dependent wife and 4 dependent children gains a reduction of SI 61 .98 or 22.2 per cent in the tax payable If we take an actual income of $12,000 for a taxpayer with a dependent wife and 4 dependent children, his reduction in tax at these new rates would be $412.77 or 11.3 per cent of the lax payable.

These instance the effect of the new rates as announced and, I think, in general indicate a benefit to the taxpayer by the applicable reduction in the rate. Another area to which I wish to refer is the change in the minimum taxable income for individuals. Under this Bill this amount will be raised from $417 to $1,041. This will free some 600.000 taxpayers from the payment of tax. lt will result in a reduction of collection of tax of about SI4m for this year or SI 8m in a full year. In referring to this application of policy I draw attention to the report of the Commissioner of Taxation for 1971-72 wherein, under the heading of Management, Organisation and Personnel he states:

In the administration of the taxation system, the primary objectives of the Commonwealth Taxation Office are to obtain a high level of compliance with the law while keeping the costs of collection within reasonable bounds and ensuring that administrative practices will not place any avoidable burdens on the taxpaying community. 1 think that administrative practices which will not place any avoidable burdens and keeping the costs of collection within bounds are part of the reason for this change in the minimum taxable income as applicable from this year. The fact that some 600,000 taxpayers have paid about $14m in tax this year and now will no longer be required to lodge a return at that level gives some basis to the thought that perhaps collection costs and administrative practices will be served by this more realistic application of a revised minimum taxable income level.

Some other comments by the Commissioner are of interest as we review the system of collections. A paragraph in which the Commissioner states that from the beginning of 1971-72 a new system has been installed using computer assisted assessing is noteworthy inasmuch as it. is now in full operation in all States. Under this system the returns are examined by assessors as in the past but they are able to concentrate more on the technical aspects of their work, knowing that the computer programme is able to make adjustments on detail and take other appropriate measures where the amount of a claim might exceed what past experience of the assessing officer shows to be reasonable. The computer assisted programming within a department as complex as the Commonwealth Taxation Office is an advance in technological service which we feel sure is in the interests of administration and the application of cost to income revenue earned by the department. The statistics which are shown by the Commissioner point to the complexities which range within such a department. When we see that in the course of the 1971-72 financial year some $6, 128m in tax was collected from taxpayers, 7,149,000 income tax returns were processed and 6,121,000 income tax assessments were issued, we realise just how much detail is handled by the department and now much administrative costs need to be taken into account in the collection of the tax which is applied in any budget.

I refer again to reductions which ure envisaged by these new rates. We must remind the people of Australia that these are quite concrete. They are not notional figures which we talk about. This is actual money which is of benefit to the individual taxpayer. It represents a reduction in the rate which will be applied to a taxpayer's income for this financial year. Since the announcement of the reduction I have seen it written that if we relate the percentage of increase in take-home pay to income we will obtain figures which show some disparity. It has been pointed out that on an annual income of $4,000 - which covers approximately one-quarter of all taxpayers and which relates in general to average weekly earnings - there is an increase in the take-home pay of $97 or 2.7 per cent. This was contrasted with an annual income of $15,000 where it was shown that the increase in take-home pay on the new rales would be $460, that is, a 5 per cent increase in take-home pay. It has been claimed that this is nearly twice as much proportionately and that there is disparity in the application of these new rates.

I point to that as an instance of some of the reporting which has been applied to the Budget. But equally it could be stated that if we relate proportion of annual income paid in income tax at the 2 different levels of $4,000 and $15,000 we find that there is disproportion in the rates which are applicable. We find that a person earning $4,000 per annum pays 1 1 per cent of his income in tax whereas someone at the income level of $15,000 pays a tax rate of about 34 per cent of his income. I find disproportion in these figures but I do not question that in terms of a rising scale of rates which are applicable. But I think it is incomplete to talk about disproportion in take-home pay by reduction of tax without also stating the disproportion which there might be in the level of tax which is applied at the relative income level. As part of the Budget which I support 1 welcome the reductions which have been outlined.

I find some comfort in the establishment of a committee of inquiry into the tax system of Australia. It was announced by the Treasurer that a committee of inquiry is to look at the tax structure. This is to be a full scale public inquiry. Already it hits had appointed as its Chairman the honour able Mr Justice Kenneth William Asprey, Q.C., a judge of the Supreme Court of New South Wales. I believe that the appointment of such a committee with the other experts who have agreed to serve upon it will make public an inquiry into the method of tax collection in Australia. But 1 make the comment that we should take the parallel perhaps from the United Kingdom which is at present in the midst of major tax reform. We should nom that the reforms which were instituted in the 1972 Budget of the United Kingdom were not the result of a present or recent public inquiry but rather they were proposals which had been thought through by the present Government of the United Kingdom. They were part of a programme which was presented to the people of the United Kingdom when the present Government was campaigning for election.

What I am saying is that whatever the functions of the committee of inquiry, Government action will still be needed for us to achieve a review of the collection of revenue by income tax. In the United Kingdom wc have the application of a very different taxation system from our own. Similarly, we could point to the Carter commission in Canada which conducted a full scale public inquiry and yet was not instrumental in any major reforms. I think the fact that we will have the public inquiry will be the first step towards achieving some review for which professional bodies in Australia have been pressing for some time. I would like to think that the Government decision which will be needed to restructure the taxation system will be the result in due course of recommendations of an inquiry.

Even after the reduction in revenue this year there still will be an increase of some $390m collected in pay-as-you-earn tax from individual taxpayers, most of whom are wage and salary earners who have their tax collected under the pay-as-you-earn system. We are in the midst of rising wages and costs and this application of income tax on a graduated scale still means that a reduction in rate will result in an increase in collection. To this end, I think it should be noted that last year individuals under the pay as you earn system contributed some $2, 888m in personal income tax and this year arc expected to contribute some $3,278m. This points to the need again for a review of rates. I hope that this present reduction in rates will be an immediate benefit to the spending in our economy and that it will point also to the need for the major restructure which we hope will take effect in the not too distant future.

The second Bill to which I refer is the Income Tax Assessment (No. 4) Bill 1972 which will give effect to proposals announced in the Budget Speech to increase the maximum amounts of concessional deductions relating to dependants. In that Bill there is also provision for a tax deduction of self-incurred education expenses. It has already been stated that the increase in the allowance for deduction of dependants is $52 per annum as related to a spouse or a parent. It previously was $312 and is now $364 per annum. A similar provision applies with respect to a student, a first child under 16 years of age or to an invalid relative. Previously the rate of allowance was $208 and is now $260 per annum. The previous allowance for children after the first child was $156 and is now $208 per annum. These are other helpful provisions with regard to the reduction of tax rates because when applied to income on a rising scale of rates they not only reduce the amount on which tax is payable but also place the taxpayer at a lower rate of application of tax. This points, I hope, to a more realistic assessment of what is needed as a deduction for dependants, such as a wife, parent, child, student child or invalid relative, because at the level of $364 for a non-income earning dependant this is not a very great allowance by which the taxpayer can reduce his taxable income.

The other provision to which I referred was that of allowing self-incurred education expenses to be deducted for qualifications which are undertaken in regard to a career which is being pursued by a taxpayer. This is a measure which I have supported for a long time. I have always felt that the income earner who self-incurs education expenses, not only where it achieves a qualification directly connected with a career but also where it self improves or gives opportunity for greater educational attainments, should be allowed as a deduction from taxable income.

The fact that this provision is not subject to an age qualification and also that it does not require that a person be a full time student - the provisions are such that a part time student or a student undertaking a course by correspondence may claim this deduction - is a feature of this new provision.

The deduction is limited to an amount of $400 which brings it into parallel with the concession which is allowed to parents of student children. It will complement the present allowance for education expenses and will be limited to the difference between the amount of $400 and any amount allowable to a parent or other person for the education expenses of a taxpayer. I am pleased that that provision has at last been included as a measure of assistance to those people either with ambition or with endeavour who do self-incur education expenses for approved courses.

The only other matter to which I wish to refer is the fact that in this present income year an optional scale of tax instalment deductions will be applicable. An announcement was made on 15th September that the Commissioner of Taxation will allow a new tax instalment deduction schedule to be used at the option of employees, such as single people or working wives who wish to guard against tax instalments deducted from their salaries or wages not being enough to meet taxation assessed at the end of the year. Tn brief explanation of this, it should be said that the pay as you earn deductions for taxation purposes are calculated on a basis which assumes that there will be some deductions from the taxable income. There is a minority of taxpayers whose deductions for these items are not as great as the amounts taken into account in the general schedules. These people are now entitled to arrange with their employers for tax instalments to be deducted at higher than standard rates. This is a measure which I think is realistic because there are many people now who are in 2 income earning families. Many of the deductions are claimed only by one of the parents who is an income earner. Many of the people who have had pay as you earn deductions extracted from their wages find that at the end of the year those deductions have not been sufficient to cover the income tax which is levied.

The new optional schedule will make it easier for the employees who so wish, and have not lodged a dependants declaration with their employer, to have instalments deducted at higher than standard rates. This is very realistic. I instance the case of an employee from whose salary deductions have been made in good faith by the employer at the scale which has been released by the Taxation Office. The employee finds at the end of the financial year that the amount of pay as you earn deductions has not been sufficient to meet the taxation assessed and that money is owed. Those who have handled such situations know that taxpayers in that position suffer disquiet and disappointment. The new provision of the optional schedule will make it so much easier for those persons to make a personal choice and to avoid the levy of tax which at the end of a financial year is unexpected. With those comments on the 2 taxation Bills, I commend the legislation to the Senate.

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