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Friday, 15 May 1942

Mr CHIFLEY (Macquarie) (Treasurer) . - by leave - I move -

That the bill be now read a second time.

This bill is submitted as a part of a plan formulated by the Government for the purpose of facilitating the raising and collection of revenue urgently needed for the efficient prosecution of the present war. Some of the other parts of that plan are embodied in the Income Tax (War-time Arrangements) Bill, the States Grants (Income Tax Reimbursement) Bill and in the Income Tax Bill, which have been or are to be introduced. Realizing the degree to which anomalies and differences in State and Commonwealth income taxes were retarding the war effort, the Government appointed a committee to consider the matter of the Commonwealth becoming the sole taxing authority in the field of income tax for the duration of the war. After a thorough examination of the matter the committee presented a report, the very first paragraph of which contains the recommendation that for the duration of the war and for one year afterwards, the Commonwealth should be the sole taxing authority in the field of income tax. In its report the committee records its conclusion that the varying rates and the conflicting principles of taxation applied throughout the States have created anomalies that operate to the detriment of Commonwealth revenue and to the confusion of taxpayers. It recommends that a system of uniform income taxation should take the place of all existing State and Federal income taxes, and should apply only to those income groups at . present within the field of federal income taxation. A further recommendation of the committee is that, in future, concessions in respect of dependants, viz., spouse, children, mother, and also in respect of life assurance and superannuation, medical and funeral expenses, gifts and calls, and rates and taxes paid on property not producing income, should take the form of a rebate of tax calculated at personal exertion rates, instead of deductions from assessable income. The Government has decided to adopt these and other recommendations of the committee for the establishment of a uniform income tax system throughout the Commonwealth, but the bill now before the House is designed to implementonly those recommendations which apply generally and which require to be embodied in the Income Tax Assessment

Act. A most difficult task of the committee, however, and one that it carried out most faithfully and efficiently, was to blend the varying concessional allowances provided for Commonwealth income tax and war tax and for the various State income taxes. After an exhaustive investigation of this problem it recommended that rebates be allowed on amounts which, broadly speaking, will preserve to taxpayers approximately the same tax concessions in respect of dependants as they have enjoyed under th, existing multiple taxing system. The Government proposes that the particular amounts recommended by the committee shall be adopted. As honorable members and the community generally will be interested in the concessional allowances which will be provided under the uniform taxing system, I shall give in detail thu particular items in respect of which it is proposed to allow such rebates.

Provision is made for a rebate of tax, calculated at the personal exertion rate appropriate to the taxable income of the taxpayer, to be allowed, in respect of rates and land taxes paid on property not producing income, and also in respect of gifts and contributions, medical and funeral expenses, life assurance and superannuation. It is also proposed that the amounts on which the rebates shall be based shall be limited, as at present, to £50 for medical expenses, £20 for funeral expenses, and £100 for life assurance and superannuation. The amounts on which it is proposed that the rebates for dependants shall be based are £100 for spouse or female relative, £100 for the mother of the taxpayer, £75 for one child and £30 for each other child. With regard to the concessional allowance for spouse or female relative, however, I explain that the amount will be £100, except where the taxable income is between £200 and £300; within that income range, the concessional allowance will vary from £100 to £125 according to the size of the taxable income. In accordance with the recommendations of the committee, it is also proposed that the maximum rebate allowed for spouse, female relative, mother and one child, respectively, shall not be greater than £45 for each such dependant, and that the maximum rebate for each child in excess of one shall be limited to £5. It is provided that the sum of all rebates allowable shall be limited to the amount of tax otherwise payable by the taxpayer. In this bill the Government also proposes to exempt the pay and allowances earned in Australia by the armed forces of any other country associated with us in the present war. A further proposal is to exempt income derived by a visitor to Australia from the carrying on of an occupation if, in the opinion of the Treasurer, the visit is primarily and principally directed towards assisting in the defence of Australia.

A departure from the committee's recommendation has been made in the case of life assurance companies. In the Commonwealth Income Tax Assessment Act there is a special concessional deduction allowing life assurance companies a deduction of 4 per cent, of their calculated actuarial liabilities. This provision is not common to any of the States. The objective aimed at by the committee was to obtain substantially the same yield in income tax for Commonwealth purposes as is now being collected from life assurance companies by the Commonwealth and the States. By adopting the State basis of assessment and by repealing the special Commonwealth deduction a much larger taxable income would result, which, at the proposed ordinary rate of company tax, would give a yield much in excess of the present total tax liabilities of these companies. To offset this the committee suggested a reduced rate of ls. 6d. in the £1. This proposal was in keeping with the practice in some of the States to concede a special rate in the case of mutual life assurance companies. However, consequent upon representations made by the Life Offices Association, the Government has agreed to continue the special Commonwealth concessional deduction under section 115 of the Income Tax Assessment Act but to reduce the amount of the deduction by lowering the percentage rate applied to the actuarial calculated liabilities from 4 per cent, to 3 per cent. This is virtually a reduction of 25 per cent, of the amount previously allowed. The retention of this concessional deduction, therefore, necessitated an increase of the rate recommended by the committee from 1s. 6d. to 5s. in order that the objective aimed at, viz., the same yield of taxation, should be obtained. These proposals put forward by the Life Offices Association have been accepted by the Government and implemented in the bill. I would point out, however, that, as time did not permit of a thorough examination of the situation, the Government has reserved to itself the right to re-examine the positionduring the next financial year and to make any further amendments that may be deemed to be reasonable in the circumstances. By clause 25 of the bill it is proposed to adopt the committee's recommendation that pence shall be eliminated from the sum of the rebates. A similar provision is proposed in the Income Tax Bill regarding tax assessed. The bill also makes provision for the allowance of a rebate in respect of gifts to the American Centre, which provides comforts for the American troops in Australia. Excepting clauses 8 and 30, the other clauses of the bill consist of consequential drafting amendments.

By clause8 it is proposed, on the recommendation of the committee on uniform taxation, to withdraw the deduction at present allowed for State income taxes, because, with the introduction of the uniform income tax, the need for State income taxes will disappear. However, as there will be some cases where State income tax will have been paid after the 30th June, 1941, in respect of earlier financial years, it is proposed, where necessary, to re-open federal 1941-42 assessments and allow a deduction for any State income tax paid after the 30th June, 1941, and before the 1st July, 1944, in respect of State income taxes assessed for the financial years 1938-39, 1939-40 and 1940-41, respectively. This should meet all normal cases of delay in payment by the taxpayer or delay in finalizing assessments by the State Commissioners. Honorable members will agree that this is quite a. reasonable proposal, particularly as the deduction will be allowed at the relatively high rate of tax payable for the financial year 1941-42. The Government has also decided that a rebate should be allowed to those taxpayers who derive interest from

Commonwealth and State Government, and also semi-government, securities, which were issued on the understanding that the interest would be free of State income tax. While a uniform tax operates no State income tax is imposed, and there is no legal obligation upon the Government to make a rebate. The Government, however, decided to honour the undertaking which it regards as a moral obligation. The committee on uniform taxation, after investigating the question of the value of the benefit enjoyed by these taxpayers under the multiple taxing system, reached the conclusion that the taxpayers concerned, whether individuals or companies, would be adequately compensated if they were allowed a rebate at the rate of 2s. for each £1 of such loan interest included in the taxable income. The Government has decided to adopt this recommendation of the committee, and. it is proposed by clause 25 to give effect to it. This rebate, of course, will not apply to Commonwealth loan interest which is subject to section 20(2) of the Commonwealth Debt Conversion Act 1931, or section 52b of the Commonwealth Inscribed Stock Act 1911-1940, and thereby enjoys freedom from income tax in excess of that payable at the 1930-31 rates. I also draw the attention of honorable members to clause 30 of the bill, which provides that payment, of federal income tax shall have priority over payment of State income tax assessed during the period of the war and for one financial year thereafter. All taxpayers, and all trustees, liquidators, &c, will be obliged to observe this priority. A provision of this nature is required in order to establish an effective uniform taxing system.

In submitting this measure to the House I advise honorable members that the entire bill is designed to assist in the establishment of a system of uniform taxation for the purpose of the effective prosecution of the war. It is put forward as a measure designed to remove anomalies in the income tax legislation of the Commonwealth and the States. No attempt has been made in this measure to follow the current practice of any State or any average practice. That, I agree, would defeat the object of uniformity. The bill will establish a workable uniform system.

It is, therefore, a most important measure, and one which I warmly commend to honorable members.

Mr Fadden - Will the Treasurer have copies of his speech circulated to us as soon as possible in order that we may study it?

Mr Calwell - The Standing Orders do not provide for the circulation of copies of Ministers' second-reading speeches, and, as the Government Printing Office is working under great difficulties owing to the brown-out, proofs of this speech will not be available for some time. Could not some arrangement be made for the circulation of informatory data whenever a bill of this nature is introduced? The business of the House would be facilitated, in this case, if Hansard proofs of the Treasurer's speech were prepared as quickly as possible and posted to honorable members in time to reach them before they leave Sydney and Melbourne next Monday night to return to Canberra.

Mr Chifley - Everything possible will be done to satisfy the request.

Debate (on motion by Mr. Fadden) adjourned.

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