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Wednesday, 14 October 1970

Mr GARLAND (Curtin) - 1 was interested to listen to the honourable member for Melbourne Ports (Mr Crean), who led for the Australian Labor Party in this debate, comment on this most important Bill as part of the Budget proposals. In the course of his remarks he touched on a great number of matters affecting income tax law. They were, in the context of the rating Bills now before the House, of relevance although in many respects they were not connected. The Government received many demands from many organisations for a reduction in income tax rates. Among the most firm in their demands for such reductions were the trade unions. So we must remember that the Budget was framed in conditions of wide-scale public demand for a reduction in income tax rates applying to the various levels of incomes.

One of the main features of this Bill is that it reduces by 10 per cent the rate of income tax on taxable income from the minimum level up to the level of $10,000. The rate then tapers down to 4.4 per cent at the level of $20,000 taxable income, and from that point the tapering continues until the taxation relief is nil at the point of $32,000. That level of $32,000 taxable income is of significance because it is at that point, and has been for many years, that the progressive scale ends its acceleration and becomes a flat rate of two-thirds tax plus 2b per cent. That is basic and perhaps the major point of this Bill, although there are 3 classes of items mentioned in it.

It has been said that income tax is a major form of raising revenue for the carrying on of the conduct of affairs in this country. It is fundamental that when those rates are set one can anticipate fairly closely the revenue that will be received and, in the total Budget concept, fairly accurately estimate what the expenditure will be. I suppose that every day we sit in this House we hear demands by the Opposition that more money ought to be spent. They are not inconsiderable demands. We have demands for very large sums. Yesterday one honourable member opposite stood up and asked that a mere $100m be appropriated for a purpose. That is not uncommon. We hear that a great deal here. Whilst it is the right of the Opposition and the right of any citizen to make such a request, the Government has the responsibility of deciding where the priorities will go and how much will be spent on the major heads of education, social services, defence and health. It has to decide how the economic cake will be cut up.

So it is not unreasonable in a debate of this kind, when suggestions are made for reducing the rate of tax or increasing expenditure - never do we hear a suggestion for reducing it - to ask: Where is the money to come from? It is not only a question of receiving money; it is also a question of providing balance to. the economy. I want to make a few remarks about the economy because it is very easy to criticise how little is spent on a certain item and take it out of the context of the total flow in the economy and the total levels of supply and demand. Very briefly, in economic terms, the Govern ment has the responsibility to make sure that the supply of goods and services in the community - the amount of physical labour that is available in the community - are balanced by a reasonable demand, because if demand outstrips supply we get shortages of goods and inflation. Inflation beyond acceptable levels of perhaps 3 per cent, 4 per cent or 5 per cent per annum creates further difficulties. They are not theoretical difficulties but difficulties which touch the lives of every individual in this country.

In taxing the private sector the Government, through its powers, subtracts a capacity for private spending so that the Government can spend the revenue so raised in the various avenues set out in the Budget, the major heads of which 1 have just referred to, to try to keep in balance supply and demand, a steady and high rate of employment and a fairly constant level of prices. In current economic conditions, were it to be otherwise, it would result in rising costs and shortages. T referred to acceptable levels of inflation because there is an incipient inflation which exists in any developed economy as a result of tremendous demand, and rightly so. Beyond acceptable levels it can create much hardship for various classes of income earners and, importantly, also upset the balance of payments. The honourable member for Melbourne Ports mentioned, as 1 said, a wide variety of matters. To the motion that the Bill be read a second time, he has moved the following amendment: the Bill bc withdrawn and redrafted-

He speaks here of the fundamental Bill of the whole Budget proposals -

.   . because whilst it reduces rates of taxation it does so in a regressive manner.

I believe that my colleague who will speak after me may refer to those words in more detail, but 1 want to put to the House one or two fundamental facts about income tax as it is levied on individuals, because we have a progressive rate of income tax. I am sure that the concept of a progressive rate is accepted by every member of the House. We have a method of levying taxation by which those with the higher incomes are taxed at a higher rale than those on the lower incomes. Surely, if we are to reduce income tax, we cannot alter that principle without giving greater benefit to those on higher incomes than to those on lesser incomes. Were it otherwise we would not have a progressive rate of income tax but a regressive rate, and that would be an impossible situation.

The rate scale which has been in existence since 1954 has to be changed from time to time because the average income increases not only with inflation but with increased wealth and productivity. One has to have this basic rate and it has to be changed from time to time. So it has come about that this year it has been re-drawn making the allowances to which I have referred. 1 would like to emphasise, incidentally, because i believe there is a misconception around the country about it to some extent, that although the rates of taxation on some incomes are higher than they have been previously no-one at any level pays more taxation than he did before. That ought to be clearly understood, although I know that there are some areas where it is not understood.

But what has emerged out of this Budget, and it perhaps is the most important point for the people of Australia to understand, is that there has been an adjustment in the Budget which provides for less personal income tax to be paid by individuals and there has been an increase in certain indirect taxes. To me, speaking perhaps from the point of view of someone who believes deeply in the value of individual initiative and private enterprise, that is a great benefit to receive. It means that a man has more of his earnings at his disposal to spend as he wishes and if he does not care to buy those items on which the excise or sales tax has been increased that is for him to decide. I am ali in favour of the individual having that right to decide and having more net disposable income to spend as he likes. In other words, I am supporting the principle which I believe is implicit in the Budget and I think that there ought to be more emphasis in our economy on indirect taxes rather than direct taxes. Here, of course, we are in an area of judgment because I do not think the honourable member for Melbourne Ports would, from what he was saying, agree with that contention. But I would say that a comparison of the 3 levels of taxation to which he referred - Commonwealth, State and local government - with other Western countries would show that Australians are paying more in direct taxation. I think the tendency today is that there should be a transfer to more indirect taxation so that the individual can make up his mind as to how he will spend his earnings, his take-home pay.

The honourable member 'for Melbourne Ports discussed at some length the concept of equity in taxation. This is a very difficult and important field. He made a number of suggestions and I would like to point out that because of the complex nature of income tax law and all tax law it is easy to take an example from here and an example from there, put them together and show an inequality or an inequitable position. I do not by any means disagree with some of the suggestions that he made. I think he made a number of valid points. I think that certainly it is the duty of this House and the Government to give continuing consideration, as they are, to endeavouring to improve the equity of taxation, but I point out there there is no such thing as perfection in equity of taxation. One can go to a lot of trouble to try to be more equitable to certain classes of income earners and find that changes that are made upset another class. This is a matter not easy of solution. But certainly with a progressive income tax scale it is impossible to give more relief in taxation to the lower than the higher income group, although the rate of taxation may be altered.

May 1 point out that in consideration of this subject it is important that when one looks at the statistics - 1 saw the honourable member for Melbourne Ports holding the booklet of very comprehensive statistics which is published each year - one must always remind oneself that the incomes stated in that booklet are net incomes - in other words, earnings less concessional and other deductions which are by no means insignificant. When one talks about a level of income being taxed one has to remember always that that is the net figure, and in the case of higher income groups the concessional deductions may be very significant, perhaps $2,000 or $3,000. When one talks about average earnings that point must be taken into account. The honourable member for Melbourne Ports at one point discussed the losses to revenue resulting from different classes of concessional deductions and inquired as to whether it was fair that one class should be at one level as against another. 1 think that is a valid and most proper avenue for inquiry and comparison, and the statistics to which I have referred illuminate that avenue. 1 believe that it is something that should be given even closer attention. But 1 do not think that one ought to go straight on from there and say that we should not make a reduction in this progressive scale when we had a general demand by the people of Australia, as we did in the months gone by, for a general reduction in direct income tax.

The honourable member also made what I could perhaps describe as a traditional attack on the progressive scale and said that it had not been varied for some years. He related it to average income. That is something which might at first sight appear to be valid but 1 really do question it. In spite of the tax rate rises that we have seen consumer spending in the economy has increased at a significant rate, somewhere in the region of 7 or 8 per cent in the last year. There has been an increase in expenditure by individuals on dwellings of the order of 20 per cent. Spending on building and construction and on plant and equipment has increased substantially and these substantial increases speak highly of the expansion which has taken place in the economy of this country. There has been a very strong increase in the net disposable income after tax - what can loosely be called take-home pay. Indeed, while the current taxation scale has been in existence, 1 think, since 1953-54 there has been an increase in the disposable income of the average wage earner with 3 children of well over 30 per cent. There is no need to be gloomy on the subject. Indeed, the overall position is a favourable one.

In addition, of course, the Government's spending, which is only possible because of taxation, has resulted in a number of benefits to individuals in the community. I think those comments put the matter into context in economic terms. The individual is far better off today than he was in 1954 in spite of the fact that the progressive scale of taxation has stayed the same. Because of the complexity of the taxation law I say that advocating a change may lead to what appears to be a more equit able position for one class but often puts another class in a more inequitable position. This Bill changes an individual's tax rates in the fasihon that I have mentioned. lt increases company tax by 2] per cent on all levels, lt increases substantially the age allowance made to women over 60 years of agc and men over 65 years of age to a point where a person entitled to an age allowance can earn a net income - that is, income less deductions - of $1,326 a year before any taxation is payable. A shaded amount of taxation is payable on amounts higher than $1,326. It is a very substantial reduction. I think that the community ought to understand that because one tends, in the total Budget context, to pick out a criticism here and there and not see the thing as a whole. But the Government has the responsibility for the economy of this country. The people and the Opposition would be the first to criticise it if it did something which was irresponsible and allowed conditions to arise which affected the people in an unacceptable way.

In the short time that is left to me I want to make one or two points which I hope the Government or the Treasurer may take into consideration. The Budget speech referred to the continuing consideration of the taxation law and rates. 1 do not refer to these necessarily as firm proposals but as questions to consider. I take it as axiomatic that the tax scale must be varied from time to time. It would seem to me that the publishing of a scale which shows a separate levy of 21 per cent is now without use and outmoded. It would also seem to me that the minimum net income taxed could well be raised from its present level of $417 to a figure of Si. 000. Such an increase would be consistent with the steady increase of the age allowance. Of course, there would be a need to have some shading in rates. I question whether there is any need to continue with the top limit at $32,000. It would seem to me that a level of $25,000 would be more apt. We should always remember thai the people in the higher income group whom I would define as those receiving in excess of $10,000 a year often use companies in order to minimise their tax burdens.

Mr DEPUTY SPEAKER (Mr Lucock - Order! The honourable member's time has expired.

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