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Tuesday, 13 October 1970

Mr CREAN (Melbourne Ports) - The Opposition intends to oppose these Bills because they are part of the

Budget system that imposes taxation increases with one hand and grants certain reductions with the other. The increases in sales tax are regressive in their incidence and inflationary in their effects. For that reason it is the intention of the Opposition to oppose the measures. For reasons that were explained by the Minister for Immigration and Minister assisting the Treasurer (Mr Lynch) and explained in technical detail also in the 48th report of the Commissioner of Taxation, 9 Bills have to be presented on a sales tax measure because of the way in which the tax is imposed. I do not want to go into the technical details, but those who are perhaps new to the House and sometimes wonder why 9 Bills have to be introduced will find the explanation on page 63 of the 48th report of the Commissioner of Taxation.

This year §645m will be collected in sales tax. Next to excise duty, income tax on individuals and company tax, sales tax is the fourth most prolific item in the Commonwealth Budget, lt is interesting to note the history of sales tax from its beginning on 1st August 1930. We have now had more than 40 years of sales tax in Australia. Table No. 34 on page 65 of the 48th report of the Commissioner of Taxation gives the history of the rates of sales tax as they have applied from 1st August 1930 to just prior to those increases. Originally the tax was a simple one of 2i per cent. Since that there was a general rate, a Second Schedule, a Third Schedule, a Fourth Schedule, a Fifth Schedule and a Sixth Schedule. Two of those do not operate any more, so there are 4 operative rates at the moment.

These Bills propose to increase the present maximum 25 per cent rate of sales tax to 27i per cent. The principal item to which it will apply, of course, is the motor car. When the Minister made his second reading speech he circulated a document indicating the items to which this 2i per cent increase would apply. Later on I want to say something about some of the items. The increase will be responsible for a further $29m revenue in this financial year; that is, from the time it became operative up to 30th June next year, $29m more will be collected than if the increase had not taken place. That, of course, will be part of the total of $645m. The Opposition opposes these measures because our view is - and I hope that some figures 1 will give in a moment will support this - that the Government has been mistaken in its Budget strategy. It has presumed the continuance of an inflationary situation and it has thought that increasing the amount of indirect taxation will lead to a decline in the rate of inflation. I am not quite sure how this philosophy is supposed to be worked out. 1 understand that the increased sales tax, let us say, on a motor car has already meant an average increase of $60 for a new motor vehicle - an increase of 10 per cent. The number of new motor vehicles purchased each year in Australia is over 400,000, rising towards a figure of 500,000 per annum. If we collect §600 on something like 450,000 units this means a total of something like $270m, a major part of the total sales tax collected. It seems to me that there is not a great deal of logic in the construction of the sales tax as to what is taxed and what is not taxed. There is a fairly large body of sales which are exempt altogether and it is probably a good thing that there are not taxes on foodstuffs, clothing and so on. Again, if one looks at the statistics of the Commissioner of Taxation one finds from a table that this tax is collected on only about one quarter, 1 think, of the total retail sales in Australia during a year. The tax is imposed at what is described as the level of the last wholesaler. But if we take the financial year 1962-63 as a guide, in that year what the Commissioner of Taxation describes as the net effective rate of sales tax was 14.1 per cent on those goods on which it was applied. That figure has risen progressively each year.

From 1961-62 until the last year for which full statistic1! were available, which was 1968-69, it had increased to 15.1 per cent on the items on which it was applicable. So there has been a systematic increase in the impact of this tax in total and that is, of course, borne out by the figures of total collection which have risen again from $290m in 1961-62 to an anticipated figure this year of $645m. If one looks at the gross national product over the same period, sales tax is now a higher proportion of gross national product or gross national expenditure, whichever way one likes to look at it, than it was many years ago. In a moment I. would like to say a little more about the philosophy of taxation in this context. Tomorrow we will be talking about the alterations in the income tax structure. In the course of his Budget Speech the Treasurer (Mr Bury) indicated that he hoped that what had been done with the income tax structure would only be the beginning of a complete new look at the total tax structure in Australia. I hope that this will be the case, and one of the methods of taxation that ought to be looked at, in addition to the direct form of taxation, is the multiplicity of items that are called indirect taxation. They are not all levied at the Commonwealth level; the majority of taxes that are available to the States and local authorities fall into this category of indirect taxation, and when one takes the total impact of taxation throughout Australia at all 3 levels of government - and it amounts now to something like 30 per cent of the gross national product - there has again been an increasingly greater reliance than there should be on these indirect taxes as a source of revenue.

Recently in Canada - and I hope some day that the same kind of thing will happen in this country - there was a royal commission on taxation. It presented its report in 1966. On page 146 of the series Penguin Modern Economics Readings' in the publication titled 'Public Finance' there is an extract from the report of the royal commission on taxation in Canada and it had this to say about sales tax:

Rigid adherence to our equity principles- they were the principles that the Commission felt should apply in a total structure - would call for the complete abolition of all sales taxes. Any adverse effects which the abolition of sales taxes and the increased reliance on personal income taxes would have on the rate of saving and on Canada's international competitive position could be offset by changes in monetary and trade policies and the fairness of the system would be improved. We do not advocate such a course, in part because we think that virtually the same result could be achieved in a way that would be less disruptive. For reasons to be explained later, we recommend that the federal government abandon its manufacturers sales tax and replace it with an indirect retail sales tax collected, if possible, by the provinces. Having taken this step the federal government should then seek to provide the provinces with sales tax room in exchange for provincial withdrawal- there is a different scheme of arrangement in Canada, of course - from the imposition of corporation income taxes.

It goes on further in that vein, but the suggestion there is that there may be, even if we decide eventually to retain some sort of sales tax, better ways of collecting it than the existing methods. A couple of years ago I made reference in this House to a device that has been adopted in some of the European countries, that is, a tax called the value added tax. It is a rather complicated mechanism and I do not intend and could not explain in simple language its application. But nevertheless when one is talking of forms of taxation one has to be concerned with the complexity of the problem. The other day I was interested in reading in one of those statements that emanate from the Prime Minister's Department - one of the various utterances that he and others make - that in the course of a discussion the other day he said that he thought it was not a bad idea to toss ideas around in public without indicating what one's view on a proposition was because in matters that are controversial by so doing one may perhaps enlighten the public as to the complexity of the problem. I think the same sort of thing applies when one comes to talk about reforming the total tax structure.

Honourable members ought to realise that it is a most complicated system that we are dealing with. It is one that has grown up over a great number of years and which it is not possible to radically change quickly. 1 have often thought that it would not be a bad idea if we could have a tax holiday and say that on 30th June 1971 all taxes throughout Australia will cease, but then add the unfortunate rider that on 1st July 1971 a new set will come into operation. Because it is virtually impossible to do that one has to make changes rather more slowly and this is why I think that when reductions or increases are made they should sometimes be made a little more carefully than they are. Certainly in regard to the income tax adjustments we will be discussing tomorrow, in my view they were made in the worst possible manner.

The reason given by the Government for these increases in sales tax is that it hopes they will lessen somehow the impact of inflation raging in the community. To me it is a rather dubious proposition. Let us say, for example, that you increase the sales tax on a motor car so that the price is now S60 greater than it was. I think it is a matter of fine judgment as to whether you really restrict the sale of motor cars or whether you are restricting the sale of something else. 1 used the argument in this place once before that you put a tax on cauliflowers in order to reduce the consumption of cabbages. I think overall that this is the intention of the Government in this instance. 1 do not really think that the Government believed that the sale of motor cars would be affected very much because it has budgeted for a further $29m during twothirds of the financial year even after this impost.

I was rather interested this morning to read an article in today's 'Financial Review' written by Mr P. J. Sheehan of the Australian National University, lt is headed Monetary reasons why an Australian business slowdown could continue'. Table 1 in the article is headed 'Selected production series 1970. (Seasonally adjusted, average of monthly figures.)' and he gave the total motor vehicles per thousand units. In the first quarter of this year there was a total sale throughout Australia of 40.6 thousand motor vehicles. In the second quarter the figure had declined to 39.1 thousand. In the period from July to August it was proportionately 37.8 thousand or, as he says, a percentage change of this quarter over the first quarter of 7 per cent. In the text of the article he said:

Total registrations of new motor vehicles rose somewhat in July-August over the monthly average of the second quarter, but remained below the level of the first quarter.

Retail sales were virtually flat in May, June and July, although they pulled up a little in August. The rate of growth of spending on capital investment other than construction pulled back sharply in the June quarter.

The portent of his article is that it is his belief that the Government has misjudged the total tempo of the economy and whilst there may be inflationary trends, nevertheless there are signs of declining economic activity relative to the total population and the total activity. I submit that if what he says continues to be borne out it is likely that there will not be as many motor cars sold as was projected. The motor car industry in Australia is fairly significant. As some of my colleagues already know, there has been a dreadful impact as a result of the farming situation upon the sale of tractors in our economy, leading to a decline in the industrial area of Sunshine in Victoria where some hundreds of men have been laid off since the beginning of this year. Even now the number of men employed is continuing to reduce further. One would hope that that kind of impact will not continue further. Nevertheless this shows bow careful one has to be when judging the effects of budgetary measures.

To me it has seemed always to be a curious philosophy that somehow you restrict inflation by increasing the price of certain articles by imposing additional tax on them. This same point is made in this rather interesting annual compilation called Impacts on the Australian Economy 1969-70' by 2 young economists, Messrs Coysh and Treyvaud. I commend them for the speed with which they issue this information. The matters they write about in this book are based on the current Budget. They say:

Earlier we referred to the fallacy of indirect taxing as an anti-inflationary device. Indirect taxes directly raise the price of products and since they are levied mainly on goods with a fairly inelastic demand, it is possible that a greater amount of money will now be spent on those goods.

If there is a greater amount of money spent on those goods there will be a lesser amount of money spent elsewhere and that seems to be where the deflationary aspect lies. The authors continue:

It may follow that less money is saved, which means a greater volume o£ money in circulation and hence a growing pressure on demand.

So the effects are not always easy to follow; nor can one be dogmatic as to what they can be. They continue:

This factor coupled with a direct inflation of the consumer price index by virtue of the artificially higher prices of the affected goods will obviously worsen the inflationary process that the policy was designed to remedy.

An alternative view is taken by the Treasurer, namely that in terms of influencing the trend in demand, changes in indirect taxes of these sorts have a more immediate effect than changes in other forms of taxation.

In his Budget the Treasurer (Mr Bury) actually reduced direct taxes and increased indirect taxes. The authors continue:

He also expects that company taxes will reduce the funds available for investment by companies and. the dividends to shareholders.

Again this simply shows how difficult it is to make precise judgments in these matters. It is the view of the Australian Labor

Party that the increases announced in this Budget - this Bill accounts for $29m of the increases - will be regressive in their impact as between individuals; that rather than abate inflation they will tend to feed it. lt ought to be realised sometimes that you can actually inflate the economy into a deflationary situation if real incomes are not adjusted fast enough to mop up the goods and services available in a community.

I think that is the point we are reaching in Australia at the moment. One rather astonishing phenomenon today Ls that everybody is alarmed by what is called the tendency for wages to rise. I point out again, as I have done in this place on more than one occasion, that the wage earner is the preponderant form of economic unit or spending unit in the community. More than 80 per cent of the people with incomes derive them as wage earners. If they are to maintain their standards and gel some share of the increased productivity, and if prices continue to rise as they have, the only way by which the wage earner can maintain and improve bis position is by increasing wages. But then the problem arises: What about the other sections in the community? lt is rather astonishing now to hear the number of people beginning to talk about the necessity of price control. It is also rather astonishing when we realise the areas those people represent. The wage earner always has insisted that if there were some measure of control of the prices of the goods which his wage is supposed to buy there would not necessarily be the same need to go for annual wage adjustments. But in default of controlling prices just as effectively as you try to regulate wages, the only course open to the wage earner is to seek higher wages. I hope that the Government will grapple with this very serious problem in the community. It is one of considerable complexity and affects the whole economy in aggregate. Something should be done to provide justice to all sections of the community - not only wage earners but those on fixed incomes and those people whose incomes are uncertain, such as the farming section and so on - and to curb the capacity of those who are able to adjust their prices to suit themselves.

In the few minutes that remain I would like to draw the attention of the House to the complaints of 2 groups in the community and no doubt there are more with complaints. However, the 2 groups I want to mention are the soft drink manufacturers on the one hand and the cosmetic and toiletry manufacturers on the other. Fortunately the burden of the soft drink people is not increased in this Budget. Although there is no increase as far as their product is concerned they still complain that their product should not be taxed at all. The cosmetic and toiletry group argues likewise. This group has had an additional burden placed upon it - the amount of sales tax on articles in this category is to be increased from 25 per cent to 27i per cent. In a letter written in June 1970 the Cosmetic and Toiletry Manufacturers Association of Australia said:

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