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Wednesday, 14 October 1970

Mr CREAN (Melbourne Ports) - On behalf of the Opposition I move the following amendment :

That all words after 'That' be omitted with a view to inserting the following words in place thereof: the Bill be withdrawn and re-drafted because whilst it reduces rates of taxation it does so in a regressive manner'.

The measures that are before the House impose the rates of income tax as they will operate on individuals and companies for this financial year. I would point out that, as is disclosed in the Budget details, the income tax on individuals is expected to yield $3.036m this year and the company tax as applied this financial year is expected to yield $l,401.m. In essence, a total of about$4,437m will be collected as a result of the application of these rates of tax. I would like to raise a point that was touched on last evening by the Minister for Customs and Excise (Mr Chipp) who, when dealing with the present levels of taxation in Australia, pointed with some pride to the fact that direct taxation, as it operates in Australia at the moment at the Commonwealth level - he stressed this - is a higher proportion of total taxation now than it was previously. This sort of comparison distorts the very real circumstance that, in Australia, taxation is not levied at only one level of government; it is levied at the Commonwealth level, the State level and the local authority level.

Because the Commonwealth is the sole collector of income tax. the major direct tax in the economy, and of company tax the picture appears to be brighter as far as the Commonwealth is concerned. But it is a picture that is significantly different when the total of taxation levied in Australia is taken into account. It will be seen from the total figures - I quote from a compila tion that I have here - that the Australian national accounts for the last financial year 1968-69 show that that year the Commonwealth collected an aggregate of $5,486m, some $3,41 3m of which was from direct taxes and the residue, about $2, 000m, from indirect taxes. The States and local authorities collected an aggregate of $1 , 208m, only $133m of which could be classified as direct taxes. When one takes the total pattern into account and also the excess that public authorities charge for the services they provide, which has been increasing in recent years and which last year aggregated $800m - this is a charge upon the users of public utility undertakings such as electricity and gas - one finds that the position is distorted even more into the regressive pattern of indirect tax as against direct tax.

Taking the whole level of taxation in Australia, at the 3 levels, it is still true that approximately 50 per cent of it is direct tax, nearly all collected by the Commonwealth, and the residue collected at the other 2 levels. The Commonwealth also collects sales tax. excise and so on.It is a 50-50 pattern still and it has not altered very significantly over the last several years.I am sorry that I cannot put my hand on the figures for the last 4 years which are contained in the White Paper on national income. We now turn to the very significant question of the equity of taxation. The Treasurer in his Budget speech spoke about the revision of taxing. He said:

In deciding on this kind of revision, we have had regard to the way in which the incidence of the effective burden of tax has been altered by past rises in incomes. Effective tax rates have increased more on lower and middle incomes than on higher incomes, and in giving some relief from the effects of the past trends, there is a clear case for ensuring that most of the relief will go to lower and middle income earners.

I submit that the present form of relief docs no such thing. If one had chosen to redistribute about $250m of tax, as these income tax concessions do, one could not think of any worse way to do it. Contrary to what has been said, the maximum advantage goes to those with the highest incomes and the fewest dependants, and the least of the relief goes to those with the lowest incomes and the most dependants. I will illustrate that in a moment by reference to a couple of tables.I emphasise again that the tax to be collected this year will be something more than$3,000m, even with the reductions aggregating about$250m proposed in this measure. People say rather glibly that direct tax is preferable to indirect tax. That ought to be true, but it is not necessarily true if inequities are allowed to creep into the income tax structure. I submit that this is what has happened in Australia. The mathematical curve of the rate of progression has remained unaltered since 1954. There have not been very great alterations made to the concessions that can be claimed for dependants such as wives and children.

Hansard of 15th September 1970.I have adapted that table, which shows a range of incomes from $417 to $100,000 and over, by dividing it into 3 ranges of income, $417 to$4,000 - $417 being the minimum income subject to taxation - $4,000 to $10,000 and $10,000 plus. I have consulted the Minister in charge of the debate and with the concurrence of honourable membersI incorporate that table in Hansard.


It is an adaptation of the question asked by the Leader of the Opposition and the details contained in the document entitled Commonwealth Income Tax Statistics' which was brought down with the Budget. In Australia for the year ended June 1968. which is the last year for which statistics are available, there were nearly 5 million taxpayers. There has been a lot of talk about what is a middle income and not much attention given in my view to what is a low income.I have heard the range quoted as being as high as$3, 000 at the bottom and $16,000 at the top. These statistics are based on grade of actual income, that is, the income before the concessions are taken off. In Australia for the year ended June 1968 only 71.000 people out of 5 million - less than 2 per cent - had incomes in excess of $10,000. As I will point out in another table, the 2 per cent group which had incomes in excess of $1 0,000 was responsible for 20 per cent of the income tax collected. But when we talk about giving relief to people receiving in excess of$1 0,000I simply submit that we are talking about a fairly select section of the total taxpaying public.

The lowest income rangeI have taken, $417 to$4,000- $4,000 is about $77 per week- accounted for 4,027,000 or 80 per cent of taxpayers. It is a bit difficult in Australia to make a proper appraisal of the weight of taxation because whilst there is considerable detail in the statistics there is in fact no distinction between married and single taxpayers. In the lower levels of income the statistics tend to be distorted by 2 factors. They comprise single people who have just commenced work and, to an extent, some of the effects of what is called income splitting. That is to say, what should be effectively one income, by reason of resort to partnerships, trusts and private companies and so on is divided into more than one income. If one runs a farm, for instance, it is not very difficult to have it regarded as a partnership. If there is an income on the one farm of $10,000 it can be divided into 2 incomes of $5,000. It makes a considerable difference to the amount of tax paid on the farm. The other matter that cannot be separated very clearly except by a kind of deductive process is the degree of claims that are made for dependants. Nevertheless, it is possible by a deductive process to do this and, according to the statistics, if one takes the character 'spouses' - I do not think there are many wives who claim for their husbands and I think it is still preponderantly the husband who claims for the wife; therefore in my view one can use the category 'spouses and housekeepers' for a comparison of those male taxpayers who still claim support for their wives - there are 1,360,000 spouses claimed for and 874,000 of them, which is near enough to 2 out of 3, are in this lowest range of income, that is, less than $4,000 per annum or $77 per week. There is almost the same proportion of children claimed for in the same group.

The interesting thing about the table sought by the Leader of the Opposition is that if one starts with aggregate actual income for taxation purposes of something like $15,000 that is reduced to a taxable income of $12,000 after allowance for these various concessions which aggregate on their face value nearly $3,000-$2,850 in fact. The information obtained by the question asked bv the Leader of the Opposition is that those concessions when claimed meant that the revenue lost or forgone was nearly S900m. Just to take one item, life assurance, as an example, under the pro visions of the income tax law if a person is able to save $1,200 per annum for life assurance or superannuation he can claim it as a taxation deduction. This is nearly $23 a week. How many people in the community can afford to save $23 a week in the first place and are they entitled to be assisted by the revenue for so doing? I commend the details on page 1155 of Hansard to honourable members. The allowance of those concessions meant that the revenue lost $19 lm which, by way of comparison, was more than that allowed for all the wives of taxpayers in Australia. It was more than was allowed for all the children that were claimed as dependants. It exceeded the child endowment bill for the vear.

I received an answer yesterday to a question which I had asked. The answer shows - the figures are in the Budget - that in 1969-70 a lesser proportion of gross national expenditure was devoted to social welfare payments than was the case in 1960-61. This answer, which is in yesterday's Hansard for those who are interested, shows that in 1969-70 child endowment was 0.73 per cent of the gross national expenditure whereas in 1960-61, 9 years earlier, it was 0.98 per cent of the gross national expenditure. Another interesting point is that relative to the total number there was an increase in the proportion of children receiving child endowment in 1 969-70 compared to 1960-61. This shows the deterioration that has taken place in the real value of child endowment payments.

For those honourable members who have some sympathy for what are called repatriation benefits I provide these details: In 1960-61 repatriation benefits were 0.98 per cent, or nearly 1 per cent, of the gross national expenditure. In 1969-70 they had fallen to 0.74 per cent of the gross national expenditure. Th s was a deterioration in proportion to the wealth of the nation of one-quarter. Something which is rather contradictory and which has been built into the income tax structure is that the allowance made for family and other concessions runs counter to the logic of social welfare payments. As an example let us take 2 families each with 3 children under the age of 16 years. Each family receives $3 per week in child endowment irrespective of the income of the family. But if the father of one family has an actual income of $3,000 and the other father has an actual income of 810,000 the tax concession to the first family, the lower income family, is worth $2.56 a week but to the second family, the higher income family, it is $5.17 a week which is almost double the first amount. It is quite a feasible proposition that most of the taxpayers of Australia and most families would be better off if the Government did away with the taxation concessions for children and doubled the amount of child endowment which was payable. I submit that these are the sorts of things that ought to be looked at when we are examining the taxation structure.

Under the new arrangement I have not very much time left in which to speak in this debate. Also built into the existing rales structure is the effect of inflation. I will take as a comparison what is called the average weekly earnings. In Australia the average weekly earnings at present are about $77 per week or about $4,000 per year. The existing tax rate scale was last altered in 1953-54. Taking the average weekly earnings in 1953-54 as an index of 100, that index in June 1970 has risen to 237.2. Using the same basis that I have on these figures it was 201.2 in June 1968 or almost exactly double in 1967-68 what it had been in 1953. In 1953-54 the average weekly earnings were in the region of $34 to $35 or $1,700 a year. In 1968 the average had doubled to $3,400 a year. If one looks at the marginal rate of tax, which is the amount paid on an additional Si of income earned, in 1954 it was 17.6c in the $1 but in 1968 the marginal rate had risen to 29ic in the $1.

Average weekly earnings go up for 2 reasons: More than half because of inflation and something like the other half because the worker is getting his share of the increase of productivity that has taken place in a period of over 15 years. But when we take into account that more than half of every $1 the wage earner gets as a wage increase is due to price increases and less than half is due to productivity increase we see that something like 30 per cent is taken away in the additional tax that he pays. So virtually he has been robbed of some of the fruits of his progress. This is one of the reasons why the Government should periodically alter the progressive scale.

I do not know whether people are aware of the distribution of incomes in Australia so. 1 prepared a table from the statistics which are available in the booklet 'Commonwealth Income Tax Statistics'. With the concurrence of honourable members I incorporate the table in Hansard.


In compiling that table 1 divided the actual income as revealed in the taxation statistics into what are called dectiles. The total amount of income is divided into one-tenth slices. For the year ended June 1968 24 per cent of taxpayers were in the first dectile - that is, in the first one-tenth of the total income received. That is to say, one-quarter received one-tenth. They were people with incomes of less than $35 a week. Even within that level there were some who had dependants to support. They were responsible for only 4 per cent of the tax collected. At least there was some sort of case to begin to reform the tax system from the bottom. There ought to be a base deduction from everybody or what might be called subsistence or some minimum amount. It would be set as high as $1,500 or $1,600 and then the scale of progression would alter.

The next dectile involved people with incomes ranging from $1,800 to $2,400 which was 14 per cent of the taxpayers or one-seventh. They paid 7 per cent of the tax collected. They had 9 per cent of the dependants. The next one-tenth - this is a narrower band - involved people in the $45 to $54 a week range or $2,400 to $2,800. That is another 14 per cent and they also paid 7 per cent of the total tax collected. The first 5 dectiles, or half of the total income of Australia, threequarters of the population received half of the income and paid one-third of the tax. At least there is some degree of income maldistribution in Australia. In my view it is part of the duty of the progressive income tax to redress that maldistribution.

The remaining quarter of the population is found in the income levels above $70 a week. Therefore below this figure of $70 a week are three-quarters of the taxpayers and above it only one-quarter. The sort of adjustment that is made in this legislation will give two-thirds of the advantage of these taxation reductions to one-quarter of the population. If anybody suggests to me that that makes the tax structure more equitable then I would say that I have no understanding of the meaning of the word equitable'. I submit that the Government missed an opportunity here to begin to reform fundamentally the taxation structure of Australia. The way to begin is to remove the inequities that are inherent within the tax structure itself.

Sometimes people say to me: 'What is your tax schedule?' lt is impossible to write a tax schedule in the abstract. The only thing that one can sensibly do is to point out the inadequacies and injustices in the system which obtains at present. To my mind the structure that we now have is riddled with inadequacies and injustices. The progressive mathematical scale in 1954 when the average weekly earnings which would have covered probably, as it does now. about three-quarters of the tax payers was thought to be a logical scale. If it was thought to have logic in 1954 when the average wage was $1,700 and the marginal rate was 17.6c, how can it have logic with the same scale of progression in 1968 or 1970 when the average wage has doubled and when the marginal rate has risen from 17.6c in the $1 to 30c? I submit that this is only the worst of patchwork alteration and I would hope that the Government will do as it says it will do and. having made this move, will now look at the total structure of taxation in Australia. Its first look has been a pretty fleeting, pretty furtive and pretty unjust one.

Sitting suspended from 6.1 to 8 p.m.

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