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Wednesday, 14 October 1970

Mr Kevin Cairns (LILLEY, QUEENSLAND) - The honourable member for Sturt has illustrated over many years the principles of a minimum rate of growth, and he illustrates them tonight in his own stature. What does 'regressive' mean? With respect to welfare, is there less welfare distributed as a result of this Budget or as a result of this income tax measure than there was hitherto? That case has not been touched. Perhaps the Opposition meant rather to move an amendment to the effect that the income taxation measures are not as progressive as it would like them to be. The difference between the 2 is a world. But it is a difference which, I would suggest, the honourable member for Melbourne Ports (Mr Crean) did not touch upon in his contribution this afternoon. It is a difference which the honourable member for Kalgoorlie (Mr Collard) has not touched upon. It is a difference which, I would hope, the honourable member for Cunningham (Mr Connor) may touch upon when he follows me in this debate.

We must look at the requirements of an income tax system. After all, this is what we are dealing with. What are the requirements of an income tax system? We can go to the Canadian Royal Commission on taxation of 4 years ago. The Canadian Royal Commission on taxation made it perfectly clear that the first objective of the tax system was to maximise the growth of output. Unless the growth of output is maximised, a government has neither income taxation concessions to confer nor welfare to confer. But the Opposition has ignored this principle. Countries with low rates of growth have no welfare to confer. Do not members of the Opposition know that the problem with the British taxation system after the war was that insufficient incentive to the people subject to that taxation system was allowed and while the British Government devoted itself to welfare in the years immediately after the Second World War, British growth was retarded right throughout the 1950s because that principle was forgotten. That can be well substantiated, but the Opposition has ignored this principle.

It simply means that, in a sense, one has to be concerned with the vertical redistribution of taxation as between income groups. It means that different income groups are to make their appropriate contribution to a country's progress and to a country's economic growth. The vertical principles of taxation, as they apply to the income tax measures now before the House, are fair. They are adequate. More measure is made in order to draw distinctions between people at different income levels in relation to their contributions to Australian welfare than occurs in almost any other country in the world. It is no use talking about welfare on its own. We talk about nothing if we talk about welfare on its own. For example, we have the Australian Labor Party platform on taxation. It has one. It is an extremely minute document as well I would expect it to be. In the Australian Labor Party platform on tax, the Australian Labor Party never mentions these most basic principles that must animate any taxation system.- I refer to the Platform, Constitution and

Rules of the Australian Labor Party. I turn to page 11, section V headed 'Economic Planning'. Reference is made in paragraph 3 to 'The pattern of taxation and deductions to be reviewed". The Labor Party then mentions 6 items. Nowhere does it mention the most important and most central item of any taxation system.

Welfare cannot be administered in a vacuum. But the Opposition would seek to do so. Need I remind Opposition members, after all, that other Labor governments - the British Labor Government and the Australian Opposition when it was in power - administered taxation but they did not administer it so as to assume maximum growth. They administered it on the principle that all that can be obtained from the people is taken, incentive is reduced and something is re-distributed on the claw back principle. But there are those who are subject to these matters. It does not do a country any good for itself to be subject to them. While I am dealing with the different rates of taxation let me refer for a moment to the contribution made by the honourable member for Melbourne Ports. I was intrigued that, having regard to incentive, he paid such attention to the fact that only 71,000 taxpayers in this country had an actual income of $10,000 or more. One could hear the regret creep into his voice, the thought that maybe no concessions ought to have been given to these people or that the concessions ought to have been far less than they were. There we see once again the disincentive that so animates the Opposition when it is concerned with matters of taxation.

Honourable members opposite ought to know that unless there are some inequalities in income or in resources a nation just does not go ahead. No country in the world which has sought to equalise resources and income completely as between people, has progressed. It is due to a basic misunderstanding of social justice that the Opposition would seek to do this. There is a great difference between social justice, as it is administered to people, and forced equalisation. It just does not operate' in the facts of life and in the real world. Let us go a little further. What are the great disincentive effects that apply to taxation? Let us look again at the Canadian Royal Commission on Taxation.

The Commission makes it perfectly clear that to have too high a rate of taxation imposed on those on incomes above the average applies a disincentive effect that disadvantages all. It refers to this time and time again throughout its reports. The Commission said: we are convinced that high marginal personal rates of tax do have a negative effect on labour, managerial and professional effort.

This applies to the country which has so often been held up by the Opposition as the exemplar for Australia to follow. A strange silence creeps over the Opposition. Let us go a little further. What are the disincentive effects that apply to taxation? The honourable member for Melbourne Ports attempted to give example to them when he quoted the case of a worker in 1954-55 on an income of $1,700 who would be paying a rate of marginal taxation of 17.6 per cent. In 1968-69, presuming his money income had doubled to $3,400, he would be paying a marginal rate of income tax of 29.5 per cent. Somehow that was taken to illustrate the principle that taxation has got out of hand.

The honourable member knows as well as I do that it is not quite as simple as that. Over those years the increase in personal income taxation that has accrued to the Commonwealth Government has come from two or three sources. This was well set out by Professor Percy Harris, formerly of the University of Queensland and now of the University of Townsville. The first source is the increased number of taxpayers. The second is the rise in money income. The third is the increased real severity of taxation. They are the 3 ingredients of the increased taxation that comes to the Commonwealth Government. Therefore it simply means that if taxation is to be altered or reduced, if some regard is to be had for the severity of taxation, the measures can only be applied at the third level where there is a measure of the real severity of taxation.

It is interesting to note that Professor Harris, carrying the figures up to 1965-66 - I have carried them on a couple of years later - demonstrates that only 29 per cent to 30 per cent of the increase in taxation accruing to the Government comes from an increase in the real severity of taxation. His calculations are extremely complicated, but they do have some merit.

It simply means that if welfare is to be administered with respect to taxation, if taxation is to be reduced - and this has been the welfare programme of the Government - one can apply oneself only to the 29 or 30 per cent of the increase to which I have referred. This is what the Government has done.

Mr Crean - You ought to look where it falls, and. that is what you have not done.

Mr Kevin Cairns (LILLEY, QUEENSLAND) - By making 3 different grades of taxation an attempt has been made to alter the areas where the taxation falls. Honourable members opposite might argue that more steps, should have been introduced in the taxation scale. That could well be. We are on a never ending scale here. It is like unemployment. You can never introduce sufficient steps to apply in vertical redistribution. You can never have unemployment sufficiently low to satisfy. Let it also be perfectly clear that there are more steps with respect to different income levels in the Australian taxation system than apply in almost any other country.

Mr Crean - There are far too many.

Mr Kevin Cairns (LILLEY, QUEENSLAND) - The more steps there are the more differences you create between people of different income groups; the more vertical equity is observed. The Opposition has been making a case tonight that sufficient account has not been taken of the differences between income groups. It says there have been overall reductions in taxation applying over too wide a range. Now the honourable member for Melbourne Ports seems to contradict the basis on which so many of his confreres have been arguing tonight. Let me go a little further with respect to the taxation system in Australia. Is it unfair? We ask ourselves the question: What proportion of the total taxation and at what average rates of taxation do the majority of taxpayers operate, compared with the income taxation system, say, in the United States, the United Kingdom or any other country? Insofar as one can glean some data from the United Nations bulletins - they go up to only the year 1967, which I think corresponds to our financial year 1967-68 - it is perfectly clear that Australia has a fairer system than, for example, the United States.

Let us apply our thoughts to nearly 60 per cent of those who pay taxation. They contribute the major bulk of the taxation. The average rate of taxation applying to those people a couple of years ago has changed in a rather progressive manner since then, but this comparison would be appropriate. In Australia the tax for that group was at a marginal rate ranging from 12 per cent to 27 per cent and the average rate was from 5 per cent to 15 per cent. In the United States the marginal rates for the bulk of taxpayers contributing the bulk of United States taxation were not 12 per cent to 27 per cent, as in Australia, but were rather 25 per cent to 37 per cent. Their average rates were not 5 per cent to 15 per cent as in this country. Rather they were 18 per cent to 24 per cent. That gives an idea of the sources that are contributing the major bulk of the taxation which accrues to the Commonwealth Government. That is the way in which one has to judge whether a taxation system is fair or whether it is appropriate.

I have tried to indicate tonight what are some of the basic principles which have to animate any taxation system. The major one is still that it must ensure adequate economic growth. The second major principle that has to apply once that has been satisfied is that there should be appropriate redistribution. There could always be more redistribution, but the redistribution within this country is not bad. Even if one examines the state of poverty in this country, which is a measure of the redistribution of resources, one finds that poverty here is still one of the lowest levels in the world. For example, in the United Kingdom under the Labor Government it was found that between I I per cent and 14 per cent of households were at poverty level and it increased during the period that the Labor Government - the Democratic Socialists - had power. In the United States, where admittedly there is a great negro problem with respect to those in proverty, between 18 per cent and 19 per cent of households are living at poverty level. In Australia, even on the worst estimates, it is between 7 per cent and 8 per cent, lt is still too high but it is .not a bad effort. People should not knock this country all the time. Seven per cent to 8 per cent is too high but it is still one of the best levels of poverty in any part of the world. 1 suggest honourable members watch the level of poverty among different groups increase

In South Australia while our friends have power in that State. The last time they were in power they were responsible for increasing the unemployment rate in South Australia by more than it had been increased in 2 decades.

Mr DEPUTY SPEAKER (Mr Cope)Order!I ask the honourable gentleman to address the Chair.

Mr Kevin Cairns (LILLEY, QUEENSLAND) - I was under some provocation which on this occasion was understandable. We look .at the taxation system for what it is supposed to do, not what it cannot do. The Opposition has only one principle - it socks .everybody at high and low. income levels, it tries to claw back from those people, distribute it elsewhere and in fact commit the errors of the British Labour Government when it was in power for many years. What makes me so disturbed when I hear the Opposition speak of these things is that it does not seem to have learned anything from the British Chancellors of the Exchequer in the years 1946 to 1949 and in latter years. I would suggest with respect to the Opposition's platform that the Opposition should write some basic principles into the taxation system which it says it would restructure. If it did write some basic principles into the system and followed them it would find they would lead to very different results and very different judgments from those that have been proposed in this House tonight by the shadow Treasurer and the honourable member for Kalgoorlie. We have to wait to hear what is proposed by the honourable member for Cunningham.

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