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Wednesday, 1 June 1960

Mr ANTHONY (Richmond) .- I shall confine my remarks to the rather con troversial subject of the pay-roll tax - an issue that usually comes up at this stage of the year. In the pre-budget period leaders of industry present their cases to the Government for consideration when formulating the Budget, so this is a good time to discuss the pros and cons of the pay-roll tax.

Mr Duthie - You have raised this before?

Mr ANTHONY - Never. Some light has been thrown on the subject by the recent statement issued by the Treasurer (Mr. Harold Holt). The statement undeniably comes to the defence of the tax. I should like to be able to say that it makes out a good prima facie case for the tax, but I am afraid that it is too biased and that the compilers have used maximum and minimum figures for the Government's advantage all the time. To my way of thinking, parts of the statement tend to misinterpret the position or to mislead the public. Reading through this document one gains the impression that the Treasury is trying to hide something that it finds difficult to justify. This is an inequitable tax, which penalizes certain sections of industry. I feel that the purpose of the Treasurer's statement was to petrify the opponents of pay-roll tax by referring to heavy increases in company and income taxation that would have to be imposed in its place. In these remarks I want to try to answer some of the statements in the Treasurer's report. I know that the Opposition will not do so, because it is in favour of this sort of discriminatory tax - the type of tax that we would expect from a socialist government. Therefore I take it upon my shoulders to-day to do some of the Opposition's work.

It is rather amusing and interesting that I should stand up and criticize the pay-roll tax, because I happen to be the son of a former member who introduced the legislation providing for this tax when he was an assistant Minister to the Treasurer some nineteen years ago. That shows how things can alter as time passes by. All honorable members realize that the imposition of the pay-roll tax was necessary at that time. It was introduced to provide finance for child endowment, at a time when the government wanted to keep down the wage structure and yet give a benefit to the man with a family who needed help. Nineteen years ago the family man was starting to receive some assistance. In New South Wales, for instance, the government was providing child endowment for a second child and subsequent children while they were under fourteen years of age, but a means test was applied. I am told that one of the reasons why the Commonwealth did not apply the means test at the time is that many men were serving overseas in the Australian Imperial Forces and that application of the means test would have penalized all those of commissioned rank who were receiving a good salary. Consequently the Commonwealth Government decided to abolish completely the means test.

The pay-roll tax is unique. I do not think any other country in the world has a tax like it. It is a tax, not on company or private profits, but on wages. It is not a tax on the consumption of goods, such as excise or sales tax. I feel that to-day there is no longer any link between the pay-roll tax and child endowment. When it was introduced, the revenue went straight into the National Welfare Fund, from which child endowment was paid, but that position does not apply nowadays. I am particularly interested in the pay-roll tax because it tends to increase costs for our exporting industries, and in my part of the world most of the local industries are exporting industries. I feel that I should do everything possible to try to keep the cost structure down in this country so that those industries will be better able to compete in markets overseas. The Government has realized that this increase in costs is a crucial matter and this year it stepped in with a four-point plan to try to curb our cost inflation. Fellow members of the Country Party realize that the pav-roll tax imposes additional costs on our primary producers, and they have set up a small committee and studied the question. I thank the honorable member for Hume (Mr. Anderson) and the honorable member for Canning (Mr. Hamilton) for the help and information they have given me in the preparation of my speech to-day.

The pay-roll tax is unjust because it is a tax on companies and people irrespective of whether they have the ability to pay. It is unjust because it penalizes people who employ labour with a wage content of over £10,400 a year. However, before criticizing pay-roll tax too severely I want to qualify my arguments on two points. I realize that pay-roll tax cannot be abolished unless the Commonwealth has the cooperation of the States. When we vacated two other avenues of tax - land tax and entertainment tax - the State governments immediately re-imposed them. If the Commonwealth were to abolish pay-roll tax in an endeavour to cut down our cost structure and the State governments immediately re-imposed it, our purpose would be defeated. I notice that the Treasurer has made no mention of this aspect in his statement. That is a hopeful sign. Perhaps this problem is not as insoluble as I may think. If we met the State Premiers and told them of our intentions, we could, perhaps, come to some agreement with them.

The other difficulty in abolishing pay-roll tax is to fill the financial gap which would be created immediately. Pay-roll tax is forwarded to the Treasury at the end of each month. If the Commonwealth had to wait for an equivalent amount to be raised by the additional taxes, or extra tax which would naturally accrue as a result of higher profits, there would be a delay of twelve months or longer. Pay-roll tax is estimated to raise this year about £55,000,000. The gap which would be created if that amount were not forthcoming would be difficult to fill. However, I do not think that that obstacle is impossible to overcome. 1 repeat the two aspects of the matter which I have raised: First, we must have the cooperation of the States if pay-roll tax is abolished, and secondly, we must have some means of filling the immediate gap which would be created by its abolition.

During the recent trade convention the Minister for Trade (Mr. McEwen) and the officers of the department which he administers stressed the point that if Australia is to maintain her present rate of development and living standards she must increase her exports by £250,000,000 over the next five years. It is imperative, therefore, that no cost obstacle be placed in the way of our achievement of this objective. Pay-roll tax tends to increase costs and, therefore, is an obstacle. This point was made by many of the leading representatives of industry during the trade convention, including the manager of Imperial Chemical Industries of Australia and New Zealand Limited and the manager of Lysaghts steelworks. Industry is continually mentioning pay-roll tax as an impost which the Government should review.

Pay-roll tax is discriminatory. It is unfair that a person who employs more labour and so incurs a wages bill in excess of £10,400 should be penalized for his efforts. It is unfair also on groups of men who work together for the welfare of the community. I have in mind doctors and others who run clinics. If, say, five doctors work together and earn an average of about £2,000 a year and their gross wage content is in excess of £10,400, they must pay the tax. But if only one, two or three doctors work in a group and their gross wage content is not above the specified level, they are not required to pay the tax. Take the case of a retailer who may be in business in a small way. If his gross wage content is below the specified figure, he is not liable for pay-roll tax, but if it is £10,401 he must pay the 2£ per cent, impost.

I can understand a socialist government introducing this discriminatory tax to hit at the employers because socialists do not like them. Members of the socialist party have indicated always that they would like to hit at companies. The essence of the speech of the honorable member for Reid (Mr. Uren), who is now interjecting, was an attack on companies. But it is bad that a convervative government should harbour a tax of this kind. If the Opposition deposed us from office, it would exploit this tax to the fullest extent and we would be in a very invidious position because it would be most difficult to argue that the socialist government should1 not continue a tax which we have continued since its inception in 1941.

The Treasurer has stated that the primary producer, who is in effect Australia's principal exporter, pays very little directly in pay-roll tax. I agree with that statement. The amount collected last year amounted to only £700,000. But the primary producer pays very heavily in an indirect way because the pay-roll tax ingredient is included in the cost of his equipment, the transport of his goods, the fertilizer and wire that he buys, his rates, and the cost of marketing his produce. Pay-roll tax on primary and manufactured goods has an escalating effect. Although the original content may be low, it increases as the article passes through its processes. I shall support my argument by reading to honorable members a statement which was made by Mr. McCarthy, Chairman of the Tariff Board, in the board's 1956 annual report. I know that this statement has been read on many occasions, but I do not think that there is any harm in reading it again. Mr. McCarthy said -

Pay-roll tax is another example of a Government impost, right at the base of the cost and price structure which might be considered for removal. It may be true to say that every £1 of income received by the Government in payroll tax means an increase in price to consumers of at least £2. These matters though not the cause of present difficulties contribute to them and certainly call for close examination with a view to correction.

I should like to explain in detail how, with the addition of pay-roll tax, £1 can become £2. Take as an example a manufactured article which has a pay-roll tax ingredient of £1. By the time the manufacturer adds his 10 per cent, mark-up, the wholesaler adds his 20 per cent, mark-up and the retailer adds his 33 per cent, markup, there has been a 76 per cent, increase on the original cost of the article and the £1 becomes £1 15s. 2d. But those are conservative figures. Some manufacturers have a higher rate of mark-up. If the rates are respectively 15 per cent., 25 per cent, and 33 per cent., there is a 92 per cent, increase on the original cost of the article and the £1 becomes £1 18s. 4d. Of course, the increase in cost depends upon the point in the chain of production at which you commence adding the mark-up rates. In the extreme case of, say, an ore which is being mined, pay-roll tax is added to the cost of obtaining the ore, refining it, machining it and manufacturing it into an article before it passes into the hands of the wholesaler and the retailer. One must consider also the various subsidiary costs, such as transport, which are incurred as the article passes through the line of commerce.

Clearly, pay-roll tax affects the cost structure. Every £1 tax on an article becomes at least £2 by the time it reaches the consumer. In other words, the £55,000,000 which will be collected this year will add £110,000,000 to the national cost structure. Added to this is the cost to industry of collection. This is another way of looking at this. As 2i per cent, of £1 is 6d., when the average national wage is about £20, as it is at the moment, 10s. of every weekly wage represents pay-roll tax. I admit that not all wages are subject to pay-roll tax, but it is collected in respect of 66 per cent, of the wages paid in Australia, and therefore we can see that on every weekly salary in Australia, 6s. 8d. is collected for pay-roll tax. The Government intervened when it looked as though the basic wage might go up by 10s. or so a while back. If we could cut out pay-roll tax, there is a means whereby we might be able to reduce costs to industry by the equivalent of 6s. 8d. per week in wages. I have shown that the cost to Australian industry is £110,000,000 a year and I want to try now to get to the point of what is the actual net return to the Government in pay-roll tax.

The Treasurer (Mr. Harold Holt) said in his statement that the State governments paid £7,000,000, the State semigovernment authorities paid £5,700,000 and local government authorities paid £1,700,000, and that Commonwealth semigovernment authorities paid £1,000,000, bringing the total to £15,400,000. These are government utilities and whether it be local government, State governments or State government authorities, the money initially comes from the Federal government and is returned somehow through State reimbursements or grants to the States. Therefore it is merely robbing Peter to pay Paul when we tax these governmental authorities. If pay-roll tax were abolished it would mean a saving through these governmental authorities of £15,400,000.

Sir Wilfrid Kent Hughes - What about the cost of collecting it?

Mr ANTHONY - I hope to mention that later. The Commonwealth public works programme this year amounts to £144,000,000, and of this we could estimate that at least £70,000,000 would be in the form of wages. Taking 2i per cent, of £70,000,000 and allowing for the mark-up for profit which the contractor should make on top of that £70,000,000 of wages, and also the pay-roll tax factor in the materials used by government utilities, I have calculated that that pay-roll tax factor would be £2,625,000.

We expect to expend £210,000,000 on the State loans programme this year. Let us take the wage element in that £100,000,000 - and I think I am being conservative - 2i per cent, for pay-roll tax plus 50 per cent. mark-up would represent £3,750,000. Another government utility where pay-roll tax would have considerable effect is the Post Office, because in the annual report of the Post Office we see that £30,000,000 is expended on Australian materials. Of these Australian materials, two ingredients in respect of which there is a very high percentage of pay-roll tax are copper and lead. The Post Office uses 7,000 tons of copper and 10,000 tons of lead, so that in the Post Office materials there would be a pay-roll tax ingredient of about £500,000. Adding these items - public authorities, Commonwealth public works, the State loan programme and the Post Office - the redundancy in pay-roll tax amounts to £22,275,000. I want honorable members to remember that figure, because I will revert to it later in my calculations.

The Treasurer, in his statement, says that if pay-roll tax was abolished there would be an immediate gain to the Treasury in the way of increased company tax and private tax amounting to £10,000,000. I think he is being ultraconservative there. I support my argument by saying that the honorable member for Corangamite (Mr. Mackinnon) made a very good speech here on pay-roll tax in 1957 and in it he stated, on information he had obtained from the Treasury, that if pay-roll tax was abolished then it would mean £12,500,000 in the way of company tax and private tax. Mr. Henley, who was Federal President of the Taxpayers Association, said in an article the other day, that it would mean £15,000,000. I do not blame him if he exaggerates a little, but let us take it at £12,500,000, which is the figure the Treasurer gave in 1957 - and it would be higher to-day. That means that the total redundant money and increased finance represented in pay-roll tax would come to £34,750,000, which means that they would have to find a balance this year of £20,250,000. This clearly indicates that the great tragedy of the pay-roll tax is that it inflicts £110,000,000 on the cost structure in Australia for a net return to the Treasury of only £20,250,000. 1 believe that industry would be much happier to have a direct tax imposed on it in the form of increased company tax or increased personal tax to make up that £20,250,000, rather than have to pay payroll tax. We took 5 per cent, off all personal income tax last year, and that 5 per cent, would just about make up the difference if it were re-imposed. In the statement to which I have referred, the Treasurer seems to play one argument against another all the way through. It gives me the impression that it is nothing more than bureaucratic reasoning. I think the Treasury is trying to justify something that it does not really believe in. I have been told - I cannot prove whether it is correct - that this idea of pay-roll tax originally came from the Treasury Department. Maybe the Treasury is trying to justify its original suggestion. One of its arguments is that if you took off pay-roll tax it would mean that there would be less profit by the wholesaler and the retailer, for instance. But I use the argument that if prices came down there would be a bigger turnover of goods and the Treasury would thus pick up more revenue on increased profit.

Another argument is that if pay-roll tax is abolished there could not be reductions in costs of education, local government and the maintenance of law and order. I agree with that view to some degree; but you would not have to tax so much to recoup loss of pay-roll tax revenue. If abolition of pay-roll tax did not reduce costs, the Government would gain in additional tax. It would balance out in the long run whichever way you look at it. I think we all agree that it is an iniquitous tax and one that is hitting heavily on our export industries. The impost of 2i per cent, pay-roll tax weaves itself through the economic fabric of the whole nation and manifests itself as each item moves through the canals of commerce. Those items of production which are fortunate to avoid this tax iniquity, because the degree of wage operations is small, cannot be moved commercially without the tags of pay-roll tax being imprinted upon them. I regard payroll tax as a pest indigenous to Australia; it reminds me of the Noogoora burr. If it was any good, surely other countries would have taken it. All the treasurers of the world are hungry for money, but no other government has considered this tax, and that may be because it is unfair and discriminatory. I consider it to be a parasite on commerce. Of course there are different kinds of parasites, some permanent and some temporary. I believe this tax was first brought in as a temporary measure to see us through the war, but we seem to have got stuck with it. Sometimes parasites, which are beneficial, live in conjunction with their host, and that is called symbiosis.

I think that originally this tax was beneficial. It was introduced, and I think, inevitably, to keep down the wage cost structure during the war. Also, at that time the administration did not want to intrude on the normal channels of taxation - company tax and other direct and indirect taxes - the revenue from which was needed for the war effort. However, I now consider the pay-roll tax to be a parasite which is restricting the economic functioning of commerce generally throughout Australia.

I want to conclude by saying that I consider pay-roll taxation to be politically, economically and morally bad and unwise, for the following reasons: - That it pours approximately £110,000,000 into the inflationary stewpot of this country; that it hits at profitable and unprofitable businesses alike; that it gives no consideration to the capacity of businesses to pay; that it is sectional because it is hitting at employers of labour whose annual wages bill is more than £10,400; that it bumps up the cost of everything from handkerchiefs to highways; that it handicaps the Australian exporter in his search for markets.

Finally, the acceptance of such a form of taxation by a conservative government could place the members and supporters of that government in an embarrassing position if, in the future, as an Opposition they had to criticize a socialist government which would make the most of this kind of taxation.

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