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Wednesday, 24 October 1956

Mr CREAN (Melbourne Ports) .- In opening this debate for the Opposition. I should like to make what I feel is a justifiable protest about the speed with which this measure is being pushed through this House. We have here a bill of 25 clauses, supported by an explanatory memorandum of 22 closely printed pages. It was introduced in this House at 4 o'clock yesterday afternoon. Now, less than 24 hours later, we are being asked to make an intelligent appraisal of it, and pass it into law. A considerable number of amendments are to be made - the introductory no'.e to the memorandum lists nine separate heads. While it is true that one or two are machinery in nature, and that some were foreshadowed in the budget which was presented a month or two ago, the Opposition ought to have been given more time to consider them. After all, the Income Tax and Social Services Contribution Assessment Act imposes each year taxation totalling about £550,000,000 on individuals and companies. That is nearly one-half of the total tax that is collected in Australia, and a more serious approach to the matter than we have been permitted on this occasion is surely warranted. I feel that a protest ought to be made. It is not fair to ask honorable members to make a proper appraisal of the bill at such short notice.

The Treasurer (Sir Arthur Fadden), during his budget speech, indicated that he proposed to effect certain alterations in the income tax law. He said that they were of a minor kind. The Opposition feels that if the Treasurer has reached the stage of believing that the revenue position is reasonably sound, the time has come for a complete re-examination of Australian income tax which is, I. repeat, the most important single tax in operation in our community. It is levied on more than 3.500,000 individuals, and something like 25,000 separate companies, private and public. It yields an aggregate of about £550,000,000 annually. Its importance to the community of which we are members is, therefore, undeniable.

It is easy enough these days to talk about referring things to royal commissions, or special committees, but some matters are of sufficient importance to warrant a different kind of examination than can be given to them in this Parliament. Ultimately the Parliament is responsible for passing the law, but often it can be appreciably aided by expert assistance from outside. An example is provided by the work of the Commonwealth committee on rates of depreciation, of which the honorable member for Petrie (Mr. Hulme) was chairman. [ commend him and his committee for their examination of this one aspect of the important field of taxation. It is only one aspect, but the committee's work indicates the kind of examination that can be made of such matters.

It is probably true to say that the business section is better organized than is the small taxpayer to make its representations felt in Parliament. It may do so either directly, through individual honorable members, or through the various organizations such as chambers of commerce, taxpayers' associations and so on. However, the 3,500,000 individual taxpayers do not always get a proper hearing. I think that occasionally we should look a little at their requirements also.

The Treasurer has seen fit, in this measure, to grant concessions which he says will involve a loss in revenue aggregating about £1,000,000. That, out of £1,230,000,000, is not a great deal, but there may be some scope for the argument that if the Treasurer can afford taxation remissions amounting to £1,003,000, these may not be the more desirable remissions. Is the section of the community which is to receive this alleviation of taxation the most deserving? I think that, upon examination, it will be agreed that this is not the best method of giving concessions.

Sometimes we ought to consider another fundamental proposition also. Let us assume, for the sake of argument, that the Treasurer needs to collect about £360,000,000 from taxation on individuals. Will that burden be shared in the most equitable way? Again, I submit that upon proper examination it must become apparent that the family man is shouldering an unfair income tax burden.

I propose now to give one or two reasons for that view. The matters that we are considering do not involve the rates of taxation, but they do involve the principles of assessment, and once we have decided tocollect a certain sum in taxation it is very difficult to segregate our principles of assessment on the one part from our ratesof taxation on the other. As an indication' of what I mean, I would draw the attention of honorable members to page 158 of the budget papers which were presented to us some months ago. On that page appears a statistical table which indicates that in the year ended June, 1954 - the last for which published statistics are available - there were 3,545,000 income taxpayers in Australia, and that, in all, they paid £319,000,000. The table covers taxpayers according to grades of income. There were 387,000 persons in Australia who had taxable income of £300 a year or less, and between them they paid an aggregate of £1,439,000 in tax. I now submit, as I have done before, that it is doubtful whether assessing 387,000 people for the sake of collecting £1,439,000 in revenue is an economical method of obtaining revenue. A large field of taxpayers could be eliminated without much affecting the total of revenue collected.

When income tax was first introduced many years ago, there existed what was known as the statutory exemption, which provided that a person whose annual income was less than £200 or £250, or whatever the figure was, paid no tax, and that only income in excess of that amount was subject to tax. Now, however, the exemption provides only that no tax is payable by a person who earns £105 a year or less. Once the total income of a person exceeds £105, he is taxed on the whole amount. As I see it, the conception behind the statutory exemption was that the taxation authorities fixed an amount that they reckoned was the minimum amount necessary to sustain a person; and that there was no scope for the levying of tax on an income that did not exceed that amount, because the entire income was needed to support the person concerned. On top of that, if a person were married, a further allowance, the wife's allowance, which at the moment is £130, was taken into consideration. Whether that figure means that a wife can be supported for £130, which is £2 10s. a week, I am not sure. Most of us know that it costs a great deal more than that to keep a wife.

The present concession in respect of a first child is £78, and in respect of subsequent children, £52. The lower allowance in respect of subsequent children is based on the fact that child endowment of only 5s. a week is paid in respect of the first child, whereas in respect of other children the endowment paid is 10s. a week, or £26 a year. This accounts for the difference of £26 in the level of the two allowances. It is hard to know precisely what is the logic in that. It seems, in fact, that there is no longer any logic in those matters, and I submit that there should be, perhaps, a return to the old basis of taxation - a return to the statutory exemption, with a more realistic appraisal of the allowable deduction for a wife, and for children, even if some allowance were made for social services payments. However, once we begin to take social services payments into consideration we obtrude a new factor into the income taxation field.

Recently, the honorable member for Fremantle (Mr. Beazley), I think, asked the Treasurer what it would cost if the allowance for a wife were increased from £130 to £156 or some such figure. The Treasurer's answer indicated that it would not cost very many millions of pounds. Of course, the presumption there was that if this increase were made, present rates of tax would continue. That assumption might not prove to be correct once it was decided to increase the allowance, because the Treasurer would have to collect a certain amount of revenue from a taxation field which, although more restricted, would ensure a fairer distribution of the overall burden. The increase of the wife's allowance would give more justice to those with family responsibilities. I suggest that that is the principle on which income tax ought to be levied. It was the principle on which income tax was first imposed, but it was lost sight of during the war years when, for particular reasons, a completely new system was introduced. That was the scheme of concessional rebates as against concessional deductions. Since the rebate system has been changed back to the old system of deductions, there is no longer any logical justification for the amounts that now apply.

The entire subject of income tax should be examined by a comprehensive committee of inquiry, which would, if necessary, take a year or two to reach its conclusions. There have been similar inquiries in Great Britain, and two voluminous reports have been produced in that country dealing with taxation on the incomes of businesses, and on taxation generally. They have thrown a great deal of light upon this important field of taxation because, in a modern community, income tax is the prime social engine for securing a better distribution of the national income.

The basic principle of taxation is supposed to be taxation according to ability to pay, which means that a progressive rate of tax is levied. The higher the income the higher the rate of tax that has to be paid. We have a progressive tax rate in theory but its true purpose has been defeated because the allowable deductions in respect of families are no longer sufficient to enable the taxpayer at the bottom of the scale to meet his commitments. That is the first point to be considered, whether it be considered directly by a government or handed over to a committee formed of members of all parties, which would examine the facts put before it; or whether it be considered by a judicial committee of some kind that would call evidence, as was done by the committee on depreciation allowances. That committee covered a very limited field, and its recommendations affected only one section of the community, although it is a section able to make its views known.

Of the particular amendments before us I select the one concerned with the change that is being made in respect of the allowable deduction for insurance payments, or assurance payments as they are sometimes called. At the moment, the maximum amount allowable is £200 per annum. Again, I submit, as a matter of economic reality, that there is at present only a small section of the community whose members are able to claim even that maximum deduction. The benefit of the maximum as it stands can be enjoyed only by people who are able to save nearly £4 a week from their incomes for the payment of assurance premiums. I ask the Government on what level of income does it believe that a saving of £4 a week is possible, lt certainly cannot be made by a man on the average wage of £17 a week if he has to keep a wife and family. He does not get enough to save £4 a week, and so will receive no benefit whatever from the increase of the allowable deduction to £300 per annum or, roughly, £6 a week. That is why I ask whether, if the Government is able to spare the £500,000 or so that this concession will cost the revenue, it would not be more just to spread the benefit among the more deserving members of the community.

To indicate the result of this concession, I quote from a circular sent to most honorable members by the Taxpayers Association of Victoria. The circular is dated, " 30th August. 1956. Budget Night - 9 p.m.", so it apparently was printed immediately after the presentation of the budget. It shows what the increase of the allowable deduction in respect of life assurance premiums from £200 to £300 means to individual taxpayers. It shows that the value of the increase, if the new maximum is claimed, will be £3 15s. to a person whose taxable income is £250. If. on the other hand, a man's taxable income were £1.000, the increase from £200 to £300 would reduce

I he amount of tax payable by him by £19 3s. If his taxable income were £2.000, the increase from £200 to £300 in the allowance would reduce the amount of tax payable by him by £32 2s. Finally, the increase in the insurance allowance from £200 to £300 would reduce the amount of tax payable on an income of £5,000 by £51 13s.

Mr Thompson - The man in receipt of t small income could not undertake such insurance.

Mr CREAN - I suggested, in the first place, that the wage-earner would not have the capacity to insure himself for these amounts. But even if he had the capacity to pay for this insurance, the amount by which his tax would be reduced would be infinitesimal. So this bill is what might be called a piece of class legislation. It will effect only those people who previously could save £4 a week, or £200 per annum. out of their income and who may now be ;ible to save £300 per annum. This is a very restricted class of the community but. nevertheless, it is the group that thisGovernment has chosen to favour. Apparently, this proposal is connected in some way with the idea that it will encourage saving. I doubt very much whether it will encourage saving. It will certainly be an inducement or an advantage to those who do save in this way, because the extra £100 per annum that is put into insurance will be saved and the person with an income of £5,000 per annum will also save £51 13s. per annum in taxation, which makes it a very good investment for a wealthy person

I simply cite this as the kind of concession which the Government has chosen to give because it feels that it can forgo this amount. But I have indicated that concessions could have been given which would have benefited everybody in the community. I agree that the greater the number of people they affected, the greater amount of revenue they would involve. Nevertheless, we may have to get round to a re-sharing of this total collection of £300,000.000. Some people with large family responsibilities might pay less, and some people with higher incomes and less responsibilities might pay more. Surely, nobody could cavil at that, on a social basis.

Another matter that is mentioned in this measure is an alteration to what is known as the zone allowance. When the explanatory memorandum relating to this bill was circulated to honorable members, they were given a map of Australia which had red lines on it indicating zone A and zone B. I understand that these zone allowances were introduced in the I940!s or thereabouts. At that time the allowance for zone B was £20, and the allowance for zone A was £40. Subsequently, the allowance for zone A was increased from £40 to £120, which is the level at which it now stands. But no alteration whatever was made in the allowance for zone B although, initially, the proportion of the allowance for zone A to the allowance for zone B was two to one. When the allowance of £40 for zone A was increased to £ 1 20, the allowance for zone B remained at £20.

It is proposed, in this legislation, to increase the zone A allowance to £ 1 80 and to increase the zone B allowance by 50 per cent, to £30. I halt at this point to indicate that this simply means a deduction of £180 or £30, as the case may be, from the gross incomes of the people concerned. It does not mean a reduction of their tax by that amount. Therefore, if a person's rate of tax is low, amounting to 2s. or 3s. in the £1, the increase of the zone allowance from £20 to £30 might make a difference of £1 10s. or of £2 in the amount of tax paid, lt seems to me that it will not make any fundamental difference to those people who settle in these areas. I think that the honorable member for the Northern Territory (Mr. Nelson) would feel that it would be better for the Government to give the people in these areas relief by means of subsidy on transport charges than to allow them direct deductions for income tax purposes. They are grateful to be able to take what they can off their incomes for tax purposes, but it is indirect taxes rather than the direct ones which are causing havoc to their standards of living.

The Opposition proposes, in committee, to move that the allowance for zone B, which this bill fixes at £30, be increased to £90, to keep the same ratio between the allowances for zone A and zone B respectively as determined when the arrangement was initially made. One of the main reasons for this suggestion is that the people living on the west coast of Tasmania, which is designated zone B - my friend the honorable member for Wilmot (Mr. Duthie) knows the district well - are experiencing great hardships at the moment by reason of transport costs, adverse weather, bad roads and all that kind of thing. Their zone allowance is to be increased from £20 to £30, which will mean a reduction of only £2 or £3 in the aggregate amount of tax that they will pay. If the allowance were increased from £20 to £90, it would make a difference of £18 or thereabouts in the aggregate amount of their tax, which would really be a worthwhile reduction to them.

The Opposition does not suggest that allowances of £90 or £180 would necessarily be adequate but, at least, the ratio that prevailed between the allowances for the two zones, when they were initially drawn, would be re-established. It is possible that the same argument could not be advanced about some of the closer parts of Western Australia but it certainly could be advanced about the inland parts of Western Australia, a large part of South Australia and part of Queensland, which are included in zone B. They are farflung areas in which the cost of living has gone up considerably because road and rail freights have been increased. There seems to be some justification for increasing the zone allowances by greater amounts than are proposed in the bill. As I have said, 1 foreshadow that, at the appropriate stage in committee the Opposition will move that the allowance for zone B be increased to £90, in order to preserve the ratio which originally existed between the zone A allowance and the zone B allowance.

The other measures that are encompassed by this bill, for a great part, deal with depreciation allowances. I have referred already to the report made by the honorable member for Petrie (Mr. Hulme) as a member of a committee which dealt with depreciation. This measure adopts, to some extent, one or two of the recommendations that have been made in that report. The committee, when it looked at one or two of the matters that were brought to it, suggested that no change ought to be made in the present methods that are adopted in the taxation law and the rates which are allowed by the Commissioner of Taxation under his discretionary power with regard to particular pieces of plant. Again, I submit that this is an indication of the organized pressure which sometimes comes from certain sections of the community because they are organized. There has been a lot of talk among business people about what they call " capital erosion ". It arises out of the problem of inflation. I submit that it is part and parcel of inflation; and inflation does not affect only the business section of the community, lt affects wage-earners just as much as, and probably more, than it affects the business person.

However, if a businessman bought a piece of plant for £1,000 in 1946. the Commissioner of Taxation would have allowed depreciation on the basis of what accountants call " historical cost ". If the rate of depreciation is 20 per cent, or 10 per cent., that percentage is written off the initial cost of £1,003, whether it is done by the straight line method or on the diminishing balance. However, when the plant is worn out and it is desired to purchase similar plant in 1956, it may cost £2,000. All kinds of elaborate schemes have been worked out by accountancy journals to warrant departing from the historical cost basis. Wisely, in my view, no government has yet accepted the desirability of doing so, because such a departure would ignore the fact that the same degree of capital erosion is experienced by the man with £1,000 in the savings bank. In 1946, his £1,000 would have purchased certain goods, such as a motor car or a house, but if, in 1956, he tried to purchase similar goods he would find that he had suffered the same degree of capital erosion as that suffered by the man in business. The people in business have put this magic phrase, " capital erosion ", into common currency, but the unorganized and defenceless individual has not been able to bring the same kind of argument to bear. I submit that taxing authorities have been wise to resist this capital erosion argument which has been advanced by the clamant business sections of the community. Apparently, the tax authorities appreciate that inflation does not affect only business people.

The bill proposes to adjust the zone allowances of persons serving in the Australian occupation forces in order to bring their allowances up to the amounts to which I have already referred, and the Opposition offers no objection to this course. For the most part, the bill consists of machinery measures designed to correct anomalies in some instances, and in others, to concede to submissions of the Commonwealth Committee on Rates of Depreciation. Finally, it is proposed to increase tax deductions in respect of insurance premiums, which I have cited as a good example of doing the right thing to the wrong people. As I have said, the time is now ripe for a fundamental review of the whole of the income tax structure, both as to rates and assessment principles.

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