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Wednesday, 27 May 1942

Mr SPEAKER (Hon W M Nairn (PERTH, WESTERN AUSTRALIA) - I consider that the four bills may conveniently be debated simultaneously, but the motions for the second reading will be put separately.

Mr Archie Cameron - On a point of order, I should like the Prime Minister to state .whether he consents to the four bills being dealt with as one hill, and whether the Government considers that all are part and parcel of one plan?

Mr Curtin - The Government agrees that the debate on the motion for the second reading of the first bill shall be wide enough to include consideration of the principles embodied in the related measures. That does not in any -way affect the authority of the House to deal separately with each of the other bills.

Mr FADDEN - This arrangement will enable honorable members to discuss the provisions of the four measures, and suggest any amendments they may deem desirable.

The Opposition fully appreciates the magnitude of the task of mobilizing completely the resources of the nation, which faces the Government to-day. It realizes that war expenditure will continue to mount, and that the meeting of the wartime financial needs of the nation must have paramount consideration. It is appropriate that I should emphasize that the Commonwealth is prosecuting the war on behalf of, not Queensland, New South Wales, Victoria, or any other State, but Australia as a whole. I am able to express complete agreement with the declaration of the Treasurer (Mr. Chifley) that in the present emergency, the Commonwealth must have available to it the maximum taxable capacity of the nation. For some considerable time, there has been, a growing demand for the inauguration of a plan designed to achieve a greater measure of taxation uniformity, and for simplification of taxation principles generally. Action by previous Treasurers resulted in a degree of uniformity being obtained, mainly in the direction of determining a uniform basis in respect of taxable income and allowable deductions. Nevertheless, the position was still far from satisfactory. The demands upon the Commonwealth by reason of its evergrowing war and defence obligations compelled the Government in 1940 to take a very serious view of the taxation position as between the Commonwealth and the States. When I, as Treasurer, on the 21st November, 1940, delivered the budget speech covering the financial year 1040-41, I drew attention to the position as the Government of that day saw it. T stated that income tax on individuals had hitherto been only a. minor element in Commonwealth taxation, and that, if it were to become a major instrument of war taxation, it was obvious that radically different standards of taxation must be adopted. I pointed out that the tax rates imposed by the States had been respected when the federal rate proposed in the 'budget was being framed, arid added -

This has very considerably hampered Commonwealth taxation at all points of the scale, because oi the great variation in State rates. Lt is a matter for consideration whether under the increasing pressure of war we shall be able to maintain this principle. Some greater uniformity in State income taxation may become a war-time necessity.

Following this clear declaration to the States and the people of Australia, the Federal Taxation Commissioner, Mr. J Jackson made a comprehensive survey of the incidence and grades of State taxation, and analysed the position generally. Early in February, 1941, I submitted to the States a memorandum outlining possible methods of achieving taxation uniformity. These proposals, which were in the hands of the States at the beginning of February of last year, were made the subject of discussion in order that the possibilities of the position might be revealed. They were not hard and fast proposals; I made it clear to the States that they could suggest alternative means of tackling the problem. However, their replies emphasized their diverse interests, and offered no hope of an agreed settlement on the lines of any of the suggestions. The States were informed in the clearest terms that the Commonwealth had no desire to usurp In any way their functions or their sovereign rights. In. fact, in some respects, the Commonwealth proposals were not dissimilar in principle to the voluntary Loan Council, voluntarily set up in 1923, under which, in order to avoid competition on the loan market, the Commonwealth and the States agreed that there should be only one borrowing authority. I have made these observations in order to demonstrate to the House that previous administrations had endeavoured for a period of two years to achieve an effective system of uniform taxation, so that the Commonwealth could avail itself of the maximum taxable capacity of the nation.

It must be admitted that the provisions of the four bills now under consideration are revolutionary in character. The debate upon them should be one of the most important that has taken place in this House for very many years. I am not competent to deal with the constitutional aspects of the Government's proposals. We have heard it said that the States intend to contest the constitutional validity of the Government's proposals. I have no doubt that the Government has thoroughly considered that aspect of the matter, and is prepared to accept responsibility for its legislation. The Opposition recognizes the necessity to use expeditiously and effectively the full taxable capacity of the nation in order to finance the war. It must, however, be borne in mind that, whereas my discussions with the Premiers were undertaken in the hope of evolving some concrete- plan for taxation uniformity, the present Treasurer's discussions with them were upon defined and concrete proposals submitted by a committee appointed for the purpose. The instructions given to this committee were specific and definite. It was instructed to formulate a plan whereby the Commonwealth was to be the sole taxing authority in the field of income tax for the duration of the war, and the States were to be compensated by way of grants for withdrawing from the field.

The Government's attitude is that the system which it proposes is the only possible one if the maximum amount of revenue is to be obtained for the prosecution of the war. I do not agree that the specific proposal before U3 is the only one which could be submitted, or that it is the best one for the purpose. The quantum of Commonwealth taxation which can be collected from one income range is largely governed by the amount of tax collected from that range by a particular State. The Commonwealth is compelled to sacrifice revenue because of the varying income tax rates which apply in different States. One State may be the highest taxing State on incomes of £500, and another on incomes of £1,000. When income in the highest taxing State is taxed to what is considered the limit at a particular time, similar incomes in the rest of the Commonwealth are necessarily taxed below that limit - in some States very much below. A sense of justice, and consideration for the ability of the individual to pay, compel the Commonwealth to refrain from too great severity in th, case of a State in which taxation is high. The Constitution forbids discrimination between States, and consequently the Commonwealth must forego some of the revenue which might otherwise be available to it. lu some instances, these differential rates of State taxation are a manifestation of differing political principles, either at present or in the past.

The taxable capacity of States, and the financial resources upon which State governments can draw, vary widely. The States vary in population, size, natural resources and industrial development. Some of the States which are greatest in area have a small population widely distributed, and others suffer from a lack of balance between primary and secondary industries Some States, because of their proximity to the war zone, their liability to attack, or their lack of natural or industrial resources, arc not receiving their full share of Commonwealth expenditure, and State taxation must be proportionately higher because the total taxable income is low. Rates of tax in one State at some income levels are three times as high as those in some of the other States. In some States the cost of administration is low, and their social services frugal; in others the cost of administration is high. State taxation in all States from all sources has grown by 50 per cent, in five years - from £36,000,000 in 1935 to £54,000,000 in 1940. The national taxable capacity has risen very rapidly, and the benefit from this should accrue mostly to the Commonwealth. Because of increased Federal expenditure it is unnecessary for most States to spend money on unemployment relief, because unemployment has virtually ceased to exist. The States have been relieved of many of their financial responsibilities by the introduction of such Commonwealth social services as oldage, invalid and soldiers' pensions, child endowment, widows' pensions and relief to individuals temporarily out of employment. The Commonwealth is also giving increased assistance to primary and secondary industries. The position of State finances has an important bearing on the matter under discussion, and has to be considered in the light of the Treasurer's statement to the Premiers last month that the Commonwealth would Treasury, showing State deficits and sur- end the present financial year with a pluses at the 30th April, 1942, and again deficit of £70,000,000. For purposes of at the 30th April, 1941, two months comparison I place before the House a before I made my proposal to the States statement supplied to me by the last year. The table is as follows: -

From this it will be seen that the finances of the States are £3,990,000 better off than they were in April last year. The Commonwealth must be provided with sufficient funds to enable it to prosecute the war effectively, whilst the States must be left with sufficient to perform their proper functions. In practical political life these two considerations tend to clash. At this stage, the taxation of individuals resolves itself into a question of how much we can leave to each taxpayer to enable him to maintain health and efficiency. This presupposes sacrifice by individuals, and the basis of such sacrifice must be equality such as can be achieved only by a uniform rate of taxation. Unnecessary expenditure by the States must cease, and developmental works of no defence value must be discontinued. There is a vital need for sacrifice by State governments as well as by individuals. The per capita cost of public administration and social services varies greatly as between the States. The greater part of the revenue of the States is swallowed up in interest payment on dead-weight debts due to heavy borrowing over the years.

If. the Commonwealth is to be the sole taxing authority in the field of income tax, an equitable system of compensation to the States, which vacate the income tax field in favour of the Commonwealth, should make provision for the widely divergent conditions obtaining .in the various States. Compensation to the States, as provided in the. measures before the House, is to be made by averaging the State collections of income tax in the two years 1939-40 and 1940-41. Such an average includes the abnormal collections in some States due to the increase of the total taxable income because of Commonwealth war expenditure. The States are to be compensated for the loss of revenue from income taxation only. For instance, in New South "Wales the total taxes upon a per capita basis amount to £8 16s. 8d., of which taxes, other than income tax, amount to £2 16s. 5d., whilst the total taxes in Victoria are £6 12s. '3d., of which £3 2s. 8d. is for taxes not being income tax. Therefore, once the residents of Australia are put upon a uniform tax basis, New South Wales will receive a premium to the amount, compared with Victoria, of 6s. 3d. a head, this being the amount of State income tax which Victoria did not charge because of its greater taxes in other directions. An alternative method, namely, the making of a per capita payment, somewhat resembling the per capita payments made by the Commonwealth to the States as compensation for abandoning customs duties, could be considered.

As honorable members know, the late Andrew Fisher introduced the Surplus Revenue Act of 1910, which provided for per capita payments to the States for ten years. The provisions of that act continued to govern the distribution of Commonwealth revenue until 1926-27, when, under the Financial Agreement of 1.927, the Commonwealth agreed to pay to the States an annual fixed amount of £7,584,912. This represented the equivalent of the per capita payments for 1926-27. The Commonwealth Grants

Commission, in its report for the year 1934, stated-

One may conclude that the original per capita arrangement, would have worked very fairly between the Commonwealth and States, had it not been for the abnormal disturbance of the Great War.

The economic consequences of the various controls which have been placed upon civil production in order to divert manpower and materials for war-time needs, lead to the conclusion that certain definite quantities of goods, materials and services will be left over for civil consumption and use. These quantities will depend only to a relatively minor extent upon the ready money available to the geneva] public, which they are able and ready to spend. The total amount of goods available is more or less fixed according to the policy of the Government. The individual benefits by increased Commonwealth spending, because his purchasing power is increased by reason of higher wages, more overtime, and the elimination of unemployment. As the supply of goods is fixed, he can increase his individual consumption only at the expense of his fellow workers. If every one spends more, nobody benefits.

The alternative is that excess spending power must be checked both by savings and by compulsory taxation. Both of these methods have been used by the present Government. Compulsory taxation, both direct and indirect, diverts to government use a considerable amount of excess spending power. The transference of savings by means of war savings certificates and loans has been tried by the present Government only on a purely voluntary basis. The total, savings bank deposits demonstrate an unwillingness on the part of a large section of the general public to lend voluntarily. The latest figures available to roe, for February, 1942, show a total of £263,000,000 on deposit, compared with £247,696,000 in the corresponding month of last year. Obviously better alternatives should be found to curb those who control this huge volume of excess spending power.

Any proposition that the plan before the House should be continued beyond the war period and one year thereafter would have to stand a more vigorous scrutiny, because its perpetuation would render State governments too dependent upon the

Commonwealth Government. The coinposition of the respective government? might be such as to cause between them friction that might be, not only unedifying, but also positively harmful to the best interests of Australia.

Summarized, my objections to the Government's scheme are: First, the arbitrary .methods provided for recouping the States. Secondly, the injustice done to the taxpayers in the lower income- taxed States by taking a greater amount of income tax from those taxpayers than will in effect be contributed by the taxpayers of the higher incometaxed States. Thirdly, the tables of rates of taxation forming a part of the plan accentuate the present disparity whereby taxpayers under £1,000 pay too little tax and those over £1,000 pay, relatively speaking, too much tax. This disparity is aggravated even to a greater degree than a perusal of the tables discloses, because the Treasurer, in his secondreading speech, informed the House that, whilst the plan will increase Commonwealth revenues by from £12,000,000 to £15,000,000, the lower ranges of income will be relieved of the payment of £1,50)0,000. Fourthly, the wholly unnecessary complexity introduced by allowing concessional deductions as rebates of tax in lieu of the existing simple system of allowing deductions from income before determining the rate of tax. Fifthly, the inadequacy of a maximum rebate of tax for each child beyond the oldest under the age of sixteen years.

I propose now to deal in detail with each of my objections to the scheme. First, the method provided for recouping the States is purely arbitrary, as it is based on the revenue received by each from income tax only, and on the average for the years 1939-40 and 1940-41. Consequently, some States have been treated more generously than have others. Regarding my second objection to the Government's proposals, I submit that by a. sensible system of post-war credits, the injustice done to the taxpayers, to which I have referred, could be avoided. However, the system evolved should do bare justice to the individuals of those States who, by virtue of the federal taxation system that has existed since its introduction - allowance of State taxation as a deduction - have contributed a greater amount of tax to the Federal Treasury over the years. I remind the House of the proposal in the budget which I introduced last year, whereby a national contribution was to be assessed on every income in Australia, however derived, in excess of £100 for a single man or woman. From that national contribution was to be deducted the federal income tax payable in the current year, and the State income tax paid in the previous year. The balance was to be collected as a loan to be called the wartime contribution. We conscientiously believed that, in view of the disparity between the existing rates and methods of taxation, our budget supplied the most solid and straightforward way in which to iron out the difficulties. While providing the finance required for war purposes, and for post-war reconstruction, it would have arrested inflation. We insisted upon the principle of post-war credits, and on that issue we were defeated. Nothing that has happened since the 7th October, 1941, has altered our view that the fundamental principles of our policy were the best in the interests of the nation. It will be observed that, under our plan, practical uniformity would be achieved and disparities between lower taxed States and higher taxed States avoided. If it be desired to maintain the fundamental objective of the proposal before us, [ submit that the principle of my budgetary proposals - the post-war credit system - is to be preferred to that nowpresented. The introduction of a compulsory savings plan would indicate to each individual the minimum amount of savings the Government expected him to contribute. Compulsory savings would divert surplus spending power to a "nestegg " for the future and would provide a fund for post-war reconstruction when unemployment will have to be faced and when the spending power of the community cannot be maintained at its present level. Such a plan would be definite and equitable, if it were applied in strict proportion to every individual according to his capacity. Otherwise, the Government, in order to honour its pledge of an all-in war effort, must inevitably take this excess by compulsory taxation. A modification of the post-war credits scheme which my Government attempted to introduce last year would not be difficult to implement. The amount to be raised by post-war credits would need to be decided, and the appropriate scale of distribution over the various incomes could be easily determined. The system of post-war credits has been adopted successfully in England. I 'believe that such a scheme, if combined with uniform taxation, would be very effective in Australia. The individual taxpayer is provided with a compulsory savings bank account, upon which he is unable to draw until the conclusion of the war. In the post-war period, such credits would be most helpful to our economic structure. They would provide automatically for those who had accumulated credits by hard work during the war period, but who had been thrown out of employment in post-war adjustments, for the time that would elapse before they could he absorbed in civil occupations. The post-war credit system is singularly free from objection. It achieves the salient objectives of the Government's plan with the added advantage that it provides for equality of sacrifice during war-time and establishes a nest-egg for the taxpayers of the States who have been frugal and careful with their finances and thereby have contributed disproportionately to the Commonwealth. It has been stated by political opponents that post-war credits could never be repaid. That is sheer nonsense. Post-war credits would not be the only amounts to he repaid; indeed they would only be a fraction of our future contractual obligations. If default is visualized by panic-mongers, why do they support the big loans which are floated from time to time? In England, a single man on 45s. a week pays 2s. a week, the whole of which is a post-war credit. There, a married man with two children and an earned income of £350 pays £24 7s. 6d., of which £17 6s. 8d. is post-war credit.

The Chancellor of the Exchequer, Sir Kingsley Wood, speaking in the House of Commons on the 7th April, 1941, said on this subject -

This extra taxation would cut down income available for consumption - and it was necessarily and deliberately intended to do that - but it was most important that it would not be allowed to interfere with war savings. The post-war credit was intended to be in addition to and not in substitution of voluntary savings, and not only should existing contributions to war savings be maintained, but every effort should be made to increase those contributions. Indeed, by providing this small saver with the promise of a substantial nest-egg, we might well increase rather than diminish his desire for adding to it, so that he might have a sum sufficient to enable him to face with further confidence the difficulties of the post-war world.

On the 16th April last, when presenting his budget to the House of Commons, the Chancellor of the Exchequer said that before the outbreak of war 1,000,000 wage-earners in Great Britain had paid £2,500,000 in income tax. In 1941-42 5,500,000 wage-earners had paid £125,000,000 in income tax, of which £60,000,000 would be returned after the the war.

Regarding my third objection to the scheme - that relating to the tables of taxation rates - my view is that the proposed scale can be justified only by visualizing it as a first step in the plan. Unless it be implemented by adjustments when the inevitable future increases are being dealt with, undesirable features will persist. If we examine the tables prepared by the Treasurer it will be seen that a Western Australian taxpayer on £150 pays £7.3 in income tax at the present time, and a South Australian taxpayer on the same income, £5.8. The Commonwealth Government proposes to relieve these persons totally of their State tax liabilities. It i3, therefore, making a gift to them, and for what purpose? Because, and only because, there is a war on, and there must be equality of sacrifice. This is a time when just contributions are more proper and. necessary than tax remissions. The action of relieving or releasing a field of income now taxed is out of focus altogether with the basic objective of the scheme. The scales of uniform tax rates for individuals are arranged to provide the same yield of tax, £84,500,000, as is being obtained by both Commonwealth and States at present from income tax. The incidence on the various classes of taxpayers has been altered, as the group in the under £400 a year class will be relieved to the amount of £750,000; the £400-£l,000 group will pay £750,000 less, and the over £1,000 group will pay an extra £1,500,000. As I have pointed out in this House on more than one occasion, the taxable income of the under £400 group amounts to £560,000,000, based on a total taxable income of all groups of £800,000,000. The total taxable income has inevitably increased beyond these figures, which are the latest available to me. With war expenditure and increased governmental expenditure the £800,000,000 which we have been used to taking as the basis must assuredly have increased, and I venture the opinion that the taxable field is now nearer £1,100,000,000. This vast field of £560,000,000 is lagging far behind other fields in the amount of income tax which it pays, and consequently the higher income groups are being taxed more heavily to make up the balance. Income taxation is subject to the law of diminishing returns, and the imposition of a yet heavier income tax on the group already highly taxed will result in a far smaller yield of tax from that group than is expected. 1 believe that instead of relieving the under £400 group and the £400- £1,000 group of £1,500,000 of tax, a larger proportion of the aggregate tax should be obtained from these fields. The tables circulated by the Treasurer should be accepted with some reserve with respect to certain taxpayers. For instance, a Queensland taxpayer or a Victorian taxpayer receiving dividends will not find the inducement held out to him by the Treasurer so attractive as it. is painted. Such taxpayers have not been paying State income tax upon dividends, but the dividends will become wholly liable to the higher federal income tax as though the income had always been assessable income for Queensland and Victorian income tax purposes. Taxpayers with income from more than one State will also do well to accept the tables of comparisons between the proposals and the present rates as more apparent than real. In the Treasurer's appeal to the cupidity of Queensland taxpayers, it "was not necessary to claim that such an important step as the compulsion of the States to vacate the field of income taxation was required in order to remedy the position of taxpayers of that State with incomes of £250 a year - the worst case, on a proportional basis, cited by the honorable gentleman. The position is that the Commonwealth and Queensland taxes of £11.6 now payable by a Queensland taxpayer earning £250 a year only arise because the Queensland Government, in its State Development Tax Act, unreasonably declined to make any allowance for dependants. Under the new provisions this taxpayer will be required to pay only £3 16s. It is essential that the Commonwealth should obtain the whole of the revenue from the increased taxable field created by war expenditure. However, a single tax scheme is not needed to achieve that effect. Steps were in view, had the post-war credit scheme been approved, to bring about such a result.

As to my fourth objection I remind the Treasurer that, at the present time, the call is for the utmost simplicity. The cumbersome method of determining primary tax and then calculating tax rebates as a deduction therefrom conforms' no doubt to the theory which has frequently been expounded by the right honorable member for Yarra (Mr. Scullin) for many years. But the proponents of that theory, in seeking to limit the tax deductions to which a family man is now entitled, do scant justice to those to whom this country is so much indebted. In fact, they are doing a distinct disservice to Australia. The limitation of tax deductions to which I refer is not confined merely to that brought about by the maximum amount of tax to be rebated. Another kind of limitation is occasioned by determining the primary rate without reference to the concessional deductions, or, in short, by bringing the concessional deductions into account for rating purposes. The complexity and variety of these calculations, affecting as they do so many of the assessments that previously were simple and took little time to issue, particularly those in the lower ranges of income, will inevitably limit the man-power saving that might otherwise be achieved. These complexities must mean increases in some assessing staffs that could be avoided under a more simple method. Regarding my fifth objection, the rebates for dependants provide an example in support of my contentions.

In conclusion, I crystallize my attitude by saying that the present Government's scheme is not so good as, and will be no more effective in obtaining the maximum revenue for war purposes than, that which was put forward by the Government in which I was Treasurer, and which resulted in that Government being removed from office.

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