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Thursday, 28 November 1935

Senator Sir GEORGE PEARCE (Western Australia) (Minister for External Affairs) [4.30].- in reply - Senator Johnston quoted comments by Professor Bland in Sydney on certain remarks concerning trust funds made by the Auditor-General in his annual report. The honorable senator credited the learned professoor with having said that members of Parliament evidently do not understand finance. After listening to Senator Johnston I could almost believe that there is some ground for the professor's statement, because the honorable senator seems to think that it would be in the interests of Western Australia if the Commonwealth Government vacated the field of direct taxation. I thought that the honorable senator had read the second report, made in 1935, of the Commonwealth Grants Commission.

Senator E B Johnston - I have not the same faith as the honorable senator has in that commission.

Senator Sir GEORGEPEARCE.No matter what the honorable senator may think of the commission's conclusions he cannot challenge its figures because these have been taken from the audited balance-sheets of the Commonwealth. On page 29 of the commission's report are given figures showing payments made by the Commonwealth to or for Western Australia in 1933-34. These were -


I point out that the amount of the Federal AidRoads grant to Western Australia in that year exceeded the amount of petrol tax collected in that State.

Senator E B Johnston - What about customs and excise payments made -by Western Australia?

Senator Sir GEORGEPEARCE.Those are thus fully set out on page 93 of the commission's report -


The special grant to Western Australia this year is £800,000.

Senator Gibson - That amount is greater than the total amount of direct federal taxes collected in Western Aus-

Senator Sir GEORGEPEARCE Yes. The amount of direct federal taxes collected in Western Australia was £584,000; so the amount to be paid by the Commonwealth by way of special grant to that State this year will be more than £200,000 in excess of the amount that the Commonwealth collects by direct taxation in Western Australia.

Senator Collings - Yet Western Australians talk secession !

Senator Sir GEORGE PEARCE - Other payments made by the Commonwealth in or on behalf of Western Australia, as set out in the Commonwealth Grants Commission's report, are -


The total amount expended by the Commonwealth in Western Australia was £5,276,000. These transactions show that for that financial year the debit balance against Western Australia was £1,666,000, or £3 15s. 8d. a head of population; but if the additional grant of £200,000 be added the debit becomes £1,866,000. Whatever other reasons Senator Johnston may be able to advance in favour of the Commonwealth's retirement from the field of income tax altogether, he certainly cannot urge that that course would benefit Western Australia.

Senator ALLAN MACDONALD (WESTERN AUSTRALIA) - What are the par capita figures1 in some of the other States?

Senator Sir GEORGEPEARCE .For South Australia tlie debit balance is £3 2s. 2d. and for Tasmania £3 lis. 7d.both less than Western Australia. Queensland has a credit of 5s. 6d. a head, and Victoria and New South Wales have credits of 14s. 2d. and ls. a head respectively.

Senator E B Johnston - The Minister knows that there is an effective reply to that statement. Consider the excise duties collected on commodities used in Western Australia !

Senator Sir GEORGE PEARCE - If the figures mean anything at all they show that if the Commonwealth Government retired from the field of direct taxation it could not continue the grant now paid to Western Australia, and that Western Australia would have to impose not merely the rate of tax which the Commonwealth imposes, but in order to obtain the additional £800}000, a rate about 20 per cent, higher: That would be in addition to tlie State income tax now levied. Again I refer to the comments of Professor Bland, who joined in the resolutions applauding (he Auditor-General's remarks on the (subject of the trust fund. One thing is certain - were it not for the practice of paying money into a trust fund the rate of tax would fluctuate more than it does at present. That is one of the points which Mr. Cerutty and those who applaud his statement overlook. Some two years ago when the Commonwealth adopted a somewhat vigorous defence policy, involving the expenditure of capital over three years, there was a surplus in the Commonwealth accounts. Heavy guns and their armaments cannot be obtained in the year in which the Government decides upon their purchase. Material may be ordered in that year, but it may not be delivered until the following year, and the mounting of the guns may not be completed until a year law. "Were the Government to adopt tlie suggestion made by the AuditorGeneral and commended by Senator Johnston, what would happen would be this: In the year in which the Government decided upon a certain defence policy the rate of income tax could remain normal, but during the year in which war material, previously ordered, was delivered, the rate would nave to be increased substantially in order that money might be found to meet the cost of that material.

Senator Sampson - 'When the chickens came home to roost.

Senator Sir GEORGE PEARCE - Yes, there- would have to be a marked increase in income and all other taxes to meet the expenditure in that year. To avoid such violent fluctuations a proportion' of the. surplus of two years ago was paid into the trust fund, and when amounts for defence purposes fall due payments are made from that fund. In some cases the amount available in that fund will not be sufficient, and this year it is being supplemented by payments from Consolidated Revenue. Were it not for the trust fund there would be no possibility of making remissions of taxes, but, on the other hand, it would be necessary to provide for enormous increases.

Senator Sampson -. - What sort of " spin " would the Council for Scientific and Industrial Research have had but for the trust fund?

Senator Sir GEORGE PEARCE - I am glad that the honorable senator has reminded me of that. The greatest work done in the interest of science by' any Commonwealth organization is that performed by the Council for Scientific and Industrial Research. Had that council to depend on the amount which the Treasury could spare in certain years it would have been unable to adopt a continuous research policy, but, because the Government took advantage of a fortuitous surplus and paid a portion of it into a trust fund, the council knew that a sufficient sum was available to meet expenditure over a number of years. In that way it was able to commence valuable scientific research work which could not have been undertaken without tlie guarantee that money would be avail- , able in subsequent years. To undertake research the council had to bring scientists from all parts of the world, and in doing so guarantee them employment over a period of years, so that they could complete their work. The establishment of a. trust fund enabled that to be done. The work could not have been continued had it been dependent an the Commonwealth having surplus revenues in subsequent years.

Senator E B Johnston - Robbing the taxpayers years before the money was clue.

Senator Sir GEORGE PEARCE - W hen one compares the honorable senator's suggestion with the facts which I have just recited, it will be seen that that is a very cheap statement. The honorable senator's criticism bounces off without making any impression' whatever.

Senator Gibson - It is preferable that the money should be in a trust fund than that it should have been spent.

Senator Sir GEORGE PEARCE - Exactly. Let me give honorable senators another illustration, because there is a great deal of popular misconception concerning the trust fund, even amongst learned professors. I mention almost with bated breath that we have an invalid and old-age pensions liability and a war pensions liability amounting to approximately £21,000,000 a year. If on the 30 th June all surplus moneys in the Treasury were handed over-

Senator E B Johnston - At one period surpluses were -supposed to be returned to the States.

Senator Sir GEORGE PEARCE -If that generous policy were still adopted, what would be the position of the Commonwealth when the first payment of the invalid and old-age pensions and war pensions became due after the 30th June? The Government would not have the money. Any one who studies the public accounts knows that revenue does not come in regularly at so much a week. During one period of the year it comes in like an avalanche, but in other periods it is a mere trickle. If all surpluses were to be cut off at the 30th June, that money would not be available in the Treasury to meet pensions and other liabilities in July. If it were not in the Treasury or in a trust fund the Government would have to arrange a bank overdraft to meet its liabilities. Contracts also have to be considered. If a bank overdraft had to be arranged the Government would be faced with this peculiar spectacle: During one financial year it might have a surplus of several million pounds; but, if it complied with the Auditor-General's suggestion, and did not pay a portion into a trust fund, during July it would have to pay interest on borrowed money to meet its liabilities.

Senator JAMES McLACHLAN (SOUTH AUSTRALIA) - Including the parliamentary allowance of the honorable senator who is finding fault with the present system..

Senator Sir GEORGEPEARCE.Yes. If money were not in the Treasury these liabilities would have to be met by obtaining a bank overdraft. Honorable senators will recall that a bill embodying authority to pay a specified amount into a trust fund to meet invalid and old-age pensions, war pensions and other liabilities is presented to Parliament periodically.

The present system is businesslike, and preferable to paying interest on borrowed money. That is the position of the trust fund, and not much credit is due to Mr. Cerutty and the learned professor who have condemned the system.

Senator E B Johnston - The whole of the public has also condemned it.

Senator Sir GEORGE PEARCE - Is the honorable senator the mouthpiece of the public? I doubt very much whether the people generally condemn the present system. This policy, which was adopted many years ago,has been operated by all govern ments, and is the 'wisest one in all the circumstances.

Question resolved in the affirmative.

Bill read a second time.

In committee:

Clauses 1 to 4 agreed to.

Clause 5 - (1.) In addition to any income tax payable under the preceding provisions of this act, there shall, be payable upon the taxable income derived by any person - a further income tax of 5 per centum of the amount of that taxable income.

SenatorE. B. JOHNSTON (Western Australia) [4.49]. - I move -

That the House of Representatives be requested to leave out the word " five ", subclause (1), with a view to insert in lien thereof the word " one ".

If this request is approved, the remission of the special property tax will be increased from £200,000 to £1,000,000. As the Auditor-General has pointed out in his report, the amount of moneys in the trust fund is £8,000,000, and that is really part of the Consolidated Revenue Fund. He says -

That sum is available for revenue expenditude or towards the automatic reduction of the accumulated deficit of £17,000,000. It does not appear to be generally realized that by accumulating revenue moneys in trust fund for subsequent expenditure a deceptive appearance has been given to the Consolidated Revenue Fund. The result is that taxation of many millions has been imposed, particularly during the difficult depression years, a considerable time ahead of requirements. This, of course, is a most serious matter.

A sum of £8,000,000 was tucked away at the 30th June last for future expenditure; some of the money was collected years ahead of requirements, even during the difficult period of depression. In addition, after four months of this financial year has expired, there is a surplus in the current accounts of £1,990,000, making a total of nearly £10,000,000 at the disposal of the Commonwealth Government. In asking the Government to remit the special tax on income from property I am merely requesting that it should cease to collect an amount equivalent to 10 per cent, of this surplus, presuming, of course, that the £8,000,000 lias not been substantially reduced since the 30th June. The Leader of the Senate (Senator Pearce), in his speech, confirmed the fact that successive federal governments are extorting from industry and from the pockets of the people, who would spend money wisely on developmental works and in creating employment, sums of money years before it is required. These collections are stored away in Government vaults, regardless of the fact that the taxpayers are being robbed. This excessive sum, unwarrantably extorted from the taxpayers, is responsible for much of the federal extravagance. "With such large reserves at its disposal, the Federal Government seeks fresh avenues of encroachment on State rights. The real reason for the establishment of these trust funds was that the Commonwealth might deliberately rob the State governments of their rights under the federal Consti- tution at the time. The Constitution originally decreed that at the end of every financial year the surplus revenue of the Commonwealth should be distributed amongst the States, but the Federal Government resorted to a mean device to over-ride that provision, degrade the States, and take the money that they required for developing land, building railways, and generally rendering essential services. At the inception of federation it was considered that the Commonwealth Government would attend to matters of defence ; and I do not begrudge any expenditure for that purpose. But I am strongly opposed to any subterfuge by which the State Governments are robbed of their legitimate revenue. The practice is entirely wrong. Since the inauguration of the financial agreement, £8,000,000 has been piled up in a trust fund. Last year an excess of revenue over the Estimates was recorded. In the first four months of the current financial year Commonwealth revenue continues to be buoyant, there being a surplus of £1,990,000, but the sole remission of income tax which the Government proposes to make totals only £200,000. In 1934-35 the Government was obliged to make available £4,000,000 for the relief of wheat producers, but on this year's Estimates not a penny has been set aside for such a purpose. Relieved of this obligation,- what excuse has the Government for retaining this inordinate tax? In the final analysis it amounts, to legalized robbery of the taxpayers, whose pockets are being emptied years before the money is required. In consequence, the primary industries are being starved-

Senator Hardy - What percentage of the income tax is collected in Western Australia ?

Senator E B JOHNSTON - I regret that the honorable senator's vision is confined to one State, but Western Australia contributes its fair share to federal revenues, and pays far more in indirect taxes in proportion to its population than any other State. Senator Pearce quoted figures from the report of the States Grants Commission regarding Commonwealth payments to and on behalf of Western Australia, but he omitted to say that considerable amounts of excise and customs duties are collected in the. eastern States on goods utilized in Western Australia. In the past the expenditure on defence in Western Australia has never been so great as it was entitled to

On a population basis.

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