House of Representatives
9 October 1922

8th Parliament · 2nd Session



Mr. Speaker (Hon. Sir Elliot Johnson) . took the chair at 3 p.m., and road prayers.

page 3340

QUESTION

IMPORTATION OF MOTOR CHASSIS

Mr MACKAY:
LILLEY, QUEENSLAND

– I ask the Minister for Trade and Customs whether he has read the statement made by the Leader of the Country party (Dr. Earle Page) with reference to the importation of motor chassis, and whether he has anything to say about the matter?

Mr RODGERS:
WANNON, VICTORIA · LP; NAT from 1917

– I have seen the statement referred to. It was made in my absence from the House, and the departmental action of which the honorable gentleman spoke was taken by officials in my absence and in that of the Tariff Board. I have appointed a small Board, consisting of three very experienced officers, to make investigations, and to communicate to the Tariff Board applications and suggestions in connexion with the work of the Department while the members of the Board are absent in another State. This smaller Board, in fulfilment of the duties which they felt to be imposed upon them, took a certain course of action in respect of the importation of motor chassis from countries with a depreciated currency. In perfect good faith, and in my judgment in accordance with our legislation, the necessary preliminary steps were taken to see if the chassis properly came within, the scope of the anti-dumping law. Duty was paid on them, and deposits were required in respect of them to meet possible dumping duties. None of these chassis come into competition with an Australian-made article, and, therefore, section S of the Customs Tariff (Industries Preservation) Act does not apply to them, but section 9 applies to goods imported into Australia in competition with British goods, which the Act definitely seeks to protect. Beforc a dumping duty can be imposed, it is necessary to gazette the goods in question, and certain investigations have to be made. Both the importers and the British manufacturers are given an opportunity of determining the relativity of values. This, of course, is experimental legislation. There was no undue holding up of these chassis. They were entered on the 3rd, and were all liberated on the 7th, and some of them before that date. They are now in possession of the importers, and the contracts in respect of them can be completed. The Government proposes, when chassis are imported into Australia from foreign countries, to put on the British manufacturer the responsibility* of proving that the importation is detrimental to his industry. There will be no impost of dumping duty unless there is proven detriment to British industries. Additional duties cannot be levied until we are satisfied that there will otherwise be detriment to an Australian or a British industry. Every step will be taken to see that there are prompt clearances, on the necessary assurance being given for the subsequent payment of dumping duties. In this regard the undertaking of reputable firms to pay any duties that may afterwards be levied is accepted.

page 3341

QUESTION

SUGAR INDUSTRY

Mr HIGGS:
CAPRICORNIA, QUEENSLAND

– In view of the uncer tainty as to the future in the minds of all engaged in the sugar industry, and particularly in those of the cane-growers, who are doubtful whether they should plant cane, is the Prime Minister able to make a statement on the subject ?

Mr HUGHES:
Prime Minister · BENDIGO, VICTORIA · NAT

– I am not in a posi tion to make a statement if what the honorable member asks for is an indication of the policy of the Government other than that which it has from time to time declared. The report of the Accounts Committee, which was asked to investigate the conditions of the sugar industry, has not yet been presented, but when it is the Government will take note of its recommendations. Ministers will, of course, at the earliest possible opportunity, declare where they stand in this matter, though I do not imagine that that is in- doubt.

page 3341

QUESTION

TAXATION COMMISSION’S REPORTS

Mr PROWSE:
SWAN, WESTERN AUSTRALIA

– I ask the Treasurer if he has supplied to honorable members the reports of the Royal Commission on Taxation. It is a considerable time since they were issued, and many honorable members are without them?

Mr BRUCE:
Treasurer · FLINDERS, VICTORIA · NAT

– Honorable members were supplied with copies of the reports when the reports were laid on the table.

page 3341

QUESTION

BRITISH EMPIRE EXHIBITION

Representation of Australia

Mr BOWDEN:
NEPEAN, NEW SOUTH WALES

– Have arrangements yet been made for the representation of Australia at the Imperial Exhibition to bc held in 1924, and for the collection of the necessary exhibits?

Mr RODGERS:
WANNON, VICTORIA · LP; NAT from 1917

– ‘Yes. It has been decided that Australia, shall definitely and fully participate in the British Empire Exhibition, which is to be opened on the 19th April, 1924, and is to remain open for six months. The Commonwealth and State Governments have come to an agreement regarding the method and magnitude of the enterprise. The States will undertake the procuring and preparation of the exhibits, and the Commonwealth will arrange for their transport, f.o.b., from Australia, and will arrange for their display and the control and the general conduct of matters in England. It has been decided to spend £200,000 on the exhibition, and of this amount the Commonwealth will be responsible for £115,000, and the States for £85,000, divided between them on a population ‘basis, and, in addition, they will meet the cost of procuring, and preparing the exhibits. The arrangements are well in hand. There have been several conferences between ‘Commonwealth and ‘State Ministers, the last being on Saturday, when all the States were . represented.

page 3342

QUESTION

WAR SERVICE HOMES COMMISSION

Expiring Queensland Timber Rights - Assessments onHomes at Preston.

Mr MACKAY:

– I ask the Assistant Minister for . Repatriation whether it is . a fact that the option of the removal of timber under rights purchased by the War Service Homes Commission in Queensland has expired:, . and, if so, what action is to be taken for the disposal of the timber?

Mr HECTOR LAMOND:
Assistant Minister for Repatriation · ILLAWARRA, NEW SOUTH WALES · NAT

– The option for mostof the timber rights in Queensland will not shortly expire. A very limited area is covered by the rights that are expiring at an early date, and this matter is being dealt with.

Mr BRENNAN:
BATMAN, VICTORIA

– I ask the Assistant Minister for Repatriation if he can inform the House when we may expect the assessments for the War Service Homes in course of erection or already erected at Preston? . Some of these assessments having come to hand, I would be glad if the Minister could tell us when the balance will be available. Incidentally, perhaps, he can say whether he proposes to proceed with the War Service Homes Bill which is before the House, and when he may proceed with it ?

Mr HECTOR LAMOND:

– The notification of the new assessments is being proceeded with as rapidly as possible. We are torn between the desire to promote economy as far as possible and out wish to convey these announcements to the soldiers without delay. The staff is working full time on the matter, and every expedition is being used. Withregard to the further consideration of the War Service Homes Bill, that depends entirely on whether the House will give me sufficient time to put the Bill through. No one is more anxious ‘than I am that it ‘should be passed.

page 3342

QUESTION

SITUATION IN THE NEAR EAST

Mr BURCHELL:
FREMANTLE, WESTERN AUSTRALIA

– I ask the Prime Minister whether he is in a position to give theHouse any further authoritative information concerning the position in the Near East ?

Mr HUGHES:
NAT

– No, I cannot say that I am. I have been kept posted by cablegrams from theForeign Office, which have reached me in great numbers, and have kept me informed every few hours as to the position. When I last had the -honour of making astatement on the subject in . this House, I said that I would inform honorable members . if a change took place, or was threatened, winch would seem to indicate war. . My inf ormation is that . no such -change has taken place. The position has changed, and is still subject to change, . but the latest information is that the prospects of peaceful (settlement are better than they were a weekago, . and betterthan they were on Saturday last. With that I must leave the matter.

page 3342

QUESTION

COUNTRY TELEPHONE OFFICES

Mr PARKER MOLONEY:
HUME, NEW SOUTH WALES · ALP

– I ask the Postmaster-General -when he willbe prepared to make a statement in regard to the grant of more liberal conditions affecting continuous service at country telephone offices in the more important centres. I understood that the PostmasterGeneral intended to make a statement on the subject, and I should like to know whether he is now prepared to do so.

Mr POYNTON:
Postmaster-General · GREY, SOUTH AUSTRALIA · NAT

– I propose to make a statement on the subject when the House is considering the Estimates.

page 3342

QUESTION

NEW STATES

Mr CHANTER:
RIVERINA, NEW SOUTH WALES

– Seeing that the ses sion is rapidlynearing its end, will the Prime Minister give the House an opportunity of dealing with the noticeof motion appearing in my “name on the business-paper seeking an expression of the willingness of the House to facilitate the admission to the Commonwealth of any new State the establishment of which has been agreed to by the Parliament or Parliaments of the States affected? The motion is one which I think will provoke but little debate, and I should very much like to have the determination of the House upon it before it r’ises.

Mr HUGHES:
NAT

-I come to the consideration of the honorable member’s question with a- certain’ degree of detachment’. I understand that my honorable colleague the Minister for Defence (Mc. Greene)has consulted with the Leader of the Opposition. (Mr. Charlton) and. the Leader of the Country Party (Dr.. Earle Page) with regard to the disposal of our time. Although there- is nothing of the character of the- laws of the Medes and Persians about what those gentlemen have done,. I feel that I am bound by it. The honorable member, as we all are, is in the hands’ of the House. So far as the Government are concerned-, we shall be glad toafford the House an opportunity to; discuss: the matter which is> the subject’ of his notice of motion, but we cannot make more time than there is at our disposal. That is the position. I shall myself be prepared to- make a statement indicating theGovernment policy on the matter if a discussion of: the motion can be arranged.

page 3343

QUESTION

ENTERTAINMENTS TAX

Country Dances

Mr JOWETT:
GRAMPIANS, VICTORIA

– I desire to ask theTreasurer a question, without notice) on a matter of pressing importance. It has reference to the administration of the Entertainments Tax Act. We have made tickets of admission up to1s. free of tax. My. question has relation to country dances, and is quite a pressing question, as I have said.

Mr Maxwell:

– Do country dances include dances at Bendigo ?

Mr JOWETT:

– Not only dances in the city of Bendigo, but in every small’ town–

Mr SPEAKER:

– Order! I ask the honorable member to proceed with his question.

Mr JOWETT:

– I desire to ask the Treasurer if any honorable member, in, pursuance of his duty to his constituents, attends a country, dance and pays ls. as the price of admission, and in the hall meets some most delightful creature and says, “Shall we jazz?” and the lady replies, “Of course,” as she naturally would in the circumstances, and there is an extra charge- of 3d. levied for each dance, will these charges, for extra- dances be cumulative, and so involve the payment of tax by honorable members and’ by the public? Or will honorable members and the public concerned remain, as they should.be, exempt from tax?

Mr BRUCE:
NAT

– My reply’ to the honorable member is that as the question he has raised1 is . one of considerable- importance, I will1 look into it.

page 3343

PERSONAL EXPLANATION

Mr RODGERS:
WANNON, VICTORIA · LP; NAT from 1917

– I wish to. make a personal explanation’. My attention has been drawn to an article appearing in the Sun News Pictorial of Friday/ 29th September, headed “Nationalization - Rodgers on Industry…” . It reads - “‘In’ times’ of prosperity there is not a. more bloated! individualist than; the Australian squatter.”

This remark was made yesterday by the Minister for Customs (Mr. Rodgers),, in pointing; out to. the- Dairy- Council that adversity was. required to make the producers realize the need for nationalization. “ Australia has failed to nationalize: her in-, dustries in- the. past,,” he continued, “ but. she has. awakened now.”.

I would not- have bothered to direct attention to the article were it not. that the word “ nationalization. “ appears in. three different places when, no doubt, the word intended to be used was “ organization.” I do not suppose, that the Sun. newspaper would deliberately make such, a misrepresentation, but. it may have a very bad effect upon- the. acceptance, or otherwise of schemes that have already been proposed. That is my only reason for referring to the matter now. There is no- intention on the part of the Government to nationalize the. meat, the fruit, or the dairying industry; but the scheme under consideration is not finally accepted, and it will certainly prejudice’ its possible acceptance if the statement I have read goes out unchallenged. In the report of the All Australian Meat Conference, signed by Senator George Fairbairn, Mr. John B. Cramsie, Mr. W. Angliss, Mr. R. H. Edkins, and Mr. J. W. Durack, and sent to the Prime Minister (Mr. Hughes), the conclusions and’ scheme arrived at are unanimously recommended tothe whole of the pastoral and grazing interests of Australia. There is no question of nationalization; and I think I need not say again that the socialization or nationalization of industry has no support, from- this Government or myself.

page 3344

HOUR OF MEETING

Mr HUGHES:
Prime Minister · Bendigo · NAT

.- I move -

That the House, at its rising, adjourn until 11 o’clock a.m. to-morrow.

I understand that my honorable colleague (Mr. Greene) has discussed this matter with the Leader of the Opposition (Mr. Charlton), and the Leader of the Country party (Dr. Earle Page), and it only remains for me to say that the arrangement then made contemplated the House sitting to-morrow morning.

Mr CHARLTON:
Hunter

.- It will be remembered -that last week we discussed a similar motion. Subsequently, it is true, as the right honorable the Prime Minister states, that the Acting Leader of the House (Mr. Greene), in the absence of the Prime Minister with Senator Millen, had an interview with me, and, I understand now . from the Prime Minister, with the Leader of the Country party (Dr. Earle Page). It was then stated that during this week we were to pass as many of the measures on the business-paper as possible, with a view to finishing on Friday next, and then proceeding to an election. Of course, if that is the intention, and I take it from the Prime Minister that it is, I have nothing further to say. Though the hours may be long, and the work heavy, I am quite prepared to accept the position, provided we finish this week, with a view to going to the constituencies.

Mr HUGHES:

-That is so.

Question resolved in the affirmative.

page 3344

QUESTION

AUSTRALIAN METAL EXCHANGE

Mr GREGORY:
DAMPIER, WESTERN AUSTRALIA

– During the war period, very drastic powers were given to an organization known as the Australian Metal Exchange. I notice from reports from Western Australia recently that the Customs Department is still permitting the Australian Metal Exchange to exercise those powers. Is it intended to give to this outside organization, by regulation, such powers as enable it to-day to demand from metal producers a full record of all they sell, and a commission on their transactions?

Mr HUGHES:
NAT

– I must make inquiries as to exactly what the Metal Exchange is doing. It is not the desire of the Government that the Australian Metal Exchange should, harass, or in any way interfere with private enterprise. It was thought desirable, and it is still thought desirable, that we should have some check over the re-establishment of the German control of base metals that existed before the war. However, I shall look into the matter with the honorable member, if he will permit me, and endeavour to smooth out any difficulties that exist.

page 3344

MANDATED TERRITORIES

Education of European Children

Mr MAKIN:
HINDMARSH, SOUTH AUSTRALIA

– I desire to know what facilities the Government are providing in the Mandated Territories to insure that European children there shall secure the benefits of education 1

Mr HUGHES:
NAT

– We recognise that every opportunity ought to be given to European children to gain the benefits of education; and we do not stop there. We are’’ endeavouring, as far as is humanly possible, to extend the benefits of education to both the . adult and juvenile native population, with due regard to their own concepts of life, superstitions, and beliefs.

Mr Makin:

– When I was there in June last there was no provision for the education of white children.

Mr HUGHES:

– There is certainly power given under Ordinances to afford facilities for education, but the establishment of an educational system, even in a primitive way, cannot be done- by a wave of the hand. I shall be glad to tell the honorable member what has been done, and what is being done.

page 3344

QUESTION

UNEMPLOYMENT

Advances to the States.

Mr FENTON:
MARIBYRNONG, VICTORIA

– I understand- that some time ago the Government made a free gift of £250,000 to the various State Governments, with a view to providing employment for the unemployed. I should like to know whether each of tha State Governments has taken its quota, and whether employment is being provided in the States?

Mr RICHARD FOSTER:
Minister for Works and Railways · WAKEFIELD, SOUTH AUSTRALIA · NAT

– Each of the State Governments has accepted ite quota, and has submitted a schedule of works. All but the schedule of one State have been approved.

page 3345

ROWAN COLLECTION

Mr HUGHES:
NAT

– I should like to be allowed to say that the Government intend to submit a motion to the House asking for authority to make such arrangements with the executors of the late Mrs. Rowan as will enable the Government to acquire the Rowan collection of paintings. The House will then be able to express its opinion, and give or refuse its authority.

page 3345

PAPERS

The following papers were presented : -

Audit Act -

Regulations Amended- Statutory Rules 1922, No. 146.

Transfers of Amounts approved by the Governor-General in Council - Financial Year 1921-22- Dated 4th October, 1922.

Northern Territory Acceptance Act and Northern Territory (Administration) Act -Ordinance of 1922- No. 14- Jurors and Witnesses Payment.

War-time Profits Tax Assessment Act - Regulations Amended - Statutory Rules 1922, No. 147.

page 3345

QUESTION

MEDICAL QUARANTINE OFFICERS

Increments

Dr EARLE PAGE:
COWPER, NEW SOUTH WALES · FSU; CP from 1920

asked the Minister for Trade and Customs, upon notice -

Whether provision has been made in the Estimates of the Department of Health for such increments to Medical Quarantine Officers as are payable at the discretion of the Permanent Head, in- accordance with the determination of the Public Service Arbitrator?

Mr BRUCE:
NAT

– No provision has been made in the Estimates for increments in the cases mentioned.

page 3345

INCOME TAX ASSESSMENT BILL

Second Reading

Debate resumed from 6th October (vide page 3337), on motion by Mr. Bruce -

That this Bill be now read a second time.

Mr PRATTEN:
Parramatta

– I hope that the Treasurer (Mr. Bruce), through the Income Tax Department, will insure . some reasonable administration with regard to the passports of those Australians who leave assets in the country. I rather fear, from the wording of the Bill, and from the remarks of the Treasurer, that reputable residents, before they leave Australia, will be called upon, perhaps in the middle of the financial year, to make a return of their income, and pay the tax upon it, before they are enabled to go abroad. The Treasurer will be able to see at once that, if a business man desires to leave for a trip abroad in February or March, and has paid the assessment due to the Department for the preceding year ended 30th June, he should not be called upon to make a partial return, but if he is a reputable citizen leaving assets in the country, that should be sufficient to enable a passport to be issued. I bring this matter to the Treasurer’s attention for the reason that, within my personal knowledge, passports have been held up under such circumstances as I have mentioned.

There is another point that I would like to see considered in connexion with this Bill. As my friend the honorable member for Dampier (Mr. Gregory), whom we are all pleased to see to-day present in the House actively for the first time since hie serious illness, is president or one of the leaders of Australian cricket organizations, I believe that the matter will have his sympathy and support. I should like to see included in the Bill some amendment by which money that is received by sporting organizations, particularly cricket organizations, and has been spent in the upkeep of the game, such as in subsidizing cricket grounds and ovals, would be in some way or other exempt from income tax. This money is not profit in the ordinary acceptation of the term; it is purely gross income. The attitude of the Department, however, with regard to these and other similar organizations has been that- whenever money changes hands some of it has to be- paid into the Treasury. Seeing that, particularly with regard to cricket associations, there is no profit, qua profit, made by any one, if a specific relief is not included, at all events full exemption of money spent in the upkeep of the game should be provided.

Reference has been made to the question of the simplification of the State and Federal taxation. All honorable members will, I am sure, agree that the Treasurer has made serious and. laudable efforts to bring the State and Federal authorities into line, but so far as I can see, the great stumbling block is the difference between State and Federal methods. In the case of the Federal authorities, they follow the money distributed in dividends and do not tax at the source, while, in the case of the State authorities, they tax by steps and at the source and do not follow the money into the pockets of the individual taxpayer, as the Federal authorities do. I know that my friend the right honorable member for Balaclava (Mr. Watt), when Treasurer, made an able attempt to justify the present Federal method. . Granted that it gives more mathematical equity, I do think “that the experience of the State authorities is that their method of taxation, although not giving the mathematical equity of the Federal method, is, so far as administration is concerned, simpler and cheaper, and gives the rough measure, of justice that the exigencies of the position demand.

An alteration has been made with regard to deductions from one’s income of calls made in connexion with mining and commercial concerns. I am not quite clear as to the equity of this - mot the equity of the alteration, but the equity of being able to deduct any calls whatsoever. In the Bill there still remains the right to deduct mining calls. Coal has been omitted, but, unless carefully administered, this provision opens up all sorts of potentialities in the direction of the evasion of taxation.

I have not much more to say about the Bill. We all agree that taxation must be equitable. It should be understandable, and, so far as possible, fair ‘and final; and, most of all, it must not dry up any opportunities of .commercial or industrial expansion. I believe that the measure will do much in the direction of what we wish, and will certainly aid the Department towards greater simplification of methods, and some straightening out of perplexities in regard to previous legislation. I think it will give better, smoother, and simpler methods in connexion with departmental collection, and at less expense.

Before concluding, I should like to make a brief analysis of the present position regarding our income taxation. A good deal has been said ‘both in this chamber and on the public platform as to comparisons of taxation -here and abroad. If honorable members will closely study the- graphs that were issued in connexion with the report of the Royal

Commission on Taxation, they will see that, so far as a comparison of rates of tax on the higher incomes is concerned, the New Zealand and British are higher than any of the separate Australian graphs given, but if they will add together the Commonwealth and the respective State taxes, they will find that in the case of Western Australia the two taxes together amount to 13s. in the £1. In the case of Queensland, the amount is 12s., and in the case of New South Wales lis. in/ the £1 approximately. In each and every case it is higher than the British rate. If they will also study another graph, giving the comparison of the average rates of tax on personal exertion income, they will find that in regard to small incomes Great Britain is higher, but that in regard, to larger incomes the Commonwealth rate, added to the State rate, is considerably higher than the British in the case of Western Australian and Queensland taxpayers.

Mr Watt:

– What distinction does, the honorable member draw between small and large incomes?

Mr PRATTEN:

– In the one case the graph starts exceeding the British taxation in incomes a little over £3,000, and in the case of personal exertion it exceeds the British taxation at about £6,500 per annum.

Having given these facts, I draw the attention of the House to a report which has recently emanated from New Zealand on the incidence of ‘ income taxation in that Dominion. It is a report from a Committee representing producing, industrial, commercial, accountancy, and legal interests, which ^reported to the Government the results of its investigation into taxation. According to a. cabled communication from Wellington to the London Times -

The Committee finds that the bearable limit of taxation has been reached, that the higher graduations of the income tax are drying up sources of revenue and, if continued, will stop progress, that the higher graduations of the land tax are seriously affecting development, that the company income taxation is the highest in the Empire, and that the taxation on smaller private incomes is the lowest, and the number of exemptions is the greatest, in the Empire.

If that is true of New Zealand it is also true of Australia, when we bear in mind the figures I have just quoted, that is to say, that the limit of taxation has been reached, and that the incidence and effect of our high, taxation, both State and Federal, have been to dry up sources of revenue and retard . development.

I have no desire now to go into the question of the effect of income taxation in regard to the re-adjustment of national wealth, but when we so gliby quote wealth and income we have to remember that, although our statistics, so far as they can show us, indicate that the total national wealth of Australia is in the region of £2,500,000,000, . probably half of that wealth is in the shape of land, which has no real value unless it is used, while a large part of the remainder consists of bricks, mortar, plant, and machinery. Out of the £2,500,000,000 there is very little,comparatively speaking, in the shape of movable assets, and there is very much less in the form of current coin and gold. There is probably not more than £30,000,000 worth of gold in Australia. The banks do their thousands of millions of pounds’ worth of transactions purely on debit and credit book entries. It is obvious from these facts that the wealth of the community consists very largely of credit, and as credit consists entirely of confidence, once we become inequitable or unfair with regard to any measure of taxation, confidence is undermined and credit is damaged.

Mr Fleming:

– And wealth disappears.

Mr PRATTEN:

– As the honorable member very rightly interjects, wealth disappears. In concluding this analysis, -I assume that the income of the whole of the . people of Australia is in the region of £300,000,000 per annum, but so fax as I can see, the ambit of taxation covers not more than about £80,000,000 per annum. A very interesting return was issued by the Income Tax Commissioner in response to a question of mine regarding the income tax collected in the Commonwealth in the financial year 1910-20. It gave a good deal of detail not to be found in any publication. I think it can be assumed that relatively the position to-day is much the same as it was then. The return showed that the number of income taxpayers in the year 1919-20,. so far as the Commonwealth was concerned, was 388,159. The incidence of the exemptions now proposed by the Treasurer, it seems to me, will remove 210,423 taxpayers from the obligation to pay income tax, leaving only 177,736 persons liable to the payment of Commonwealth income tax. The 388,159 taxpayers in 1919-20-I do not think the relative figures to-day will alter the comparison very much - were assessed to pay £10,820,386 in income tax. Out of the total number of taxpayers 369,546 persons were taxed on assessable incomes’ of £1,000 or under, contributing only £1,885,777, leaving 18,613 taxpayers to pay a total of £8,934,609. On these figures it will be noted that in the year 1919-20’ less than 5 per cent, of the taxpayers paid nearly 90 per cent, of the total income taxation, and as the effect of the Government proposals will be to reduce the 388,159 taxpayers by 200,000, thus further restricting the ambit of income taxation, I have some grave doubts as to whether this is a sound, national policy.

Mr Watt:

– Hear, hear!

Mr PRATTEN:

– If this be done, 10 per cent, of the taxpayers with assessable incomes of over £1,000 will be paying. 95 per cent. of the total income taxation received. If we also remember the very high rates - Commonwealth plus State taxation - current throughout theCommonwealth it seems to me that by high taxation we are very materially hindering the development of our primary and secondary industries. Another matter to be taken into, consideration is the probate duties, that are imposed. I have already shown that Commonwealth plus State income taxation takes11s., 12s., and up to 13s. in the £1 from, the higher incomes. Inthecaseof New South Wales the Federal and State probata duties levied on an estate of the capital value of £30,000 amount to about 15 per cent. , and on an estate of £100,000, about 30 per cent. From this figure honorable members will see clearly the incidence of the taxation on the well-to-do taxpayer, whilehe lives and when he dies.

Mr Maxwell:

– Is it not equitable that those with very large incomes should contribute in this way?

Mr PRATTEN:

– I cannot follow my honorable friend all the way. As it seems often to be suggested by some that anybody with a large income did not get it honestly-

Mr Maxwell:

– I do not suggest that at all.

Mr PRATTEN:

– I believe that we ought to give plenty of incentive to the man who works and assists in the development of this country. The man who risks his capital should, at all events, get a fair field and no favour, and should not always be the target of men who are not so successful, and whose jealousy is sometimes disguised by criticism’.

In summing up this Bill I repeat what I said earlier in my address. I think the Treasurer is trying to simplify the very knotty and inequitable system of taxation that has been imposed upon the community in the past. This Bill is intended to consolidate our Commonwealth income taxation legislation. I am sorry there is not much more time fox its discussion. So far as I am concerned, I am going to take the big, broad view that it will not reduce taxation, but that it will re-adjust it in a fairer manner. If all honorable members knew as much as I do about the hardships that some of our previous legislation imposed upon the taxpayers of the Commonwealth, they would have that sympathy which I have had for them in their distress. It is common knowledge - and I say this quite frankly, and without in any way desiring to be personal or critical - that owing largely to the complexity of our previous income tax legislation, the Department has in some branches drifted into a state of confusion and chaos. I believe that this Bill will tend to straighten things out in the direction of simplicity and make for finality. It will help materially to reduce expenditure in the administration of the Department itself. I wish the Treasurer well so far as the Bill in Committee is concerned, and I hope it will have a speedy passage.

Mr HUNTER:
Maranoa

.- I wish to compliment the Treasurer (Mr. Bruce) upon the Bill. There is no doubt that with the information contained in the three Taxation Commission reports, apart altogether from the knowledge which he may have gained from practical experience, he has had to his hand material available to very few previous Treasurers. I believe that the Bill is an earnest desire to make some improvement in taxation which previously has been levied unjustly upon certain sections of the people.From that point of view it is not before its time. In the main the Bill is one for Committee. Though the averaging sys tem is an improvement upon the system introduced in the Bill of last year, it does not go far enough. The principle of averaging income for taxation purposes has been extended to all classes of business. The Treasurer has told us that the incomes of all businesses fluctuate, but in no business does income fluctuate to the same extent as in the business of a man in any way connected with the land. Bad times do not materially affect the profits of any mercantile business. A country storekeeper at . the end of a year may be able to show a profit. He may not have the cash; his profits may be represented by book debts. Bad seasons affect him, since they increase his book debts; but while he may have some temporary trouble financially, his income does not fluctuate to any material extent. City houses, in a large way of business, as the Treasurer (Mr. Bruce) will know, have a- wise and just method of keeping their business incomes fairly even, but people who earn their living on the land are in a wholly different position. A man on the land whose annual income is from £300 to £500 is not in the same position as a city man who has the same return per annum. His income is not spent in the same way as is that of a city man. No man on the land to my knowledge banks his money. As fast as he makes it he puts it into further improvements on his land. His object is to try to make his property a little more revenue-producing than it was before by putting into improvements any profits that he makes. Let me put before the House the case of a small cattle man whom I know, and who at no time made more than from £300 to £500 a year. When the cattle boom came along he was able. to muster a lot of young stock, and, borrowing money, he also bought at f airly low prices and sold >at very high prices. The result was that his taxation for the first year following the boom amounted to £1,500. That was an enormoussum for him to find >in one year for income tax purposes. The boom burst, and for two years he made’ next to nothing, with the result that he had to borrow money and has not been able since to “ get his head above water.” No business, outside of that of the man on the land, has such fluctuations. When one visits the back country one sees the effect that heavy taxation has upon the development of Australia. It i3 reflected in unemployment. Owners of cattle property, on account ©f the slump, have reduced their employees, so that to-day they have only one-fourth or. one-fifth the number of hands which they employed a few years ago. Owners of sheep property -are in a much better position, and have only reduced’ to one-half or two-thirds the number of men formerly employed by them. Taxation, together with the retrospective rents that we have had in Queensland, has done more than anything else to retard the progress of the back country there. When the man on the land strikes a bad season he, as a rule, takes it philosophically. It is a very serious matter for him on .account of adverse weather conditions to lose a large amount of capital, but he is always looking forward to a better season, when he hopes he will ‘be able to recoup himself. As a rule he does, but when in addition to the Federal land tax and income tax he has to pay State income tax .and land tax, disbursements so made represent money withdrawn, not merely from his own pockets, but from the particular industry in which he is engaged, and, in this way, taxation is retarding the development of the country. It ha3 its reflex, as I have said, in unemployment in the back country. It may be said that men with large properties and large incomes are well able to afford the taxation imposed, but we should never lose sight of the fact that while we may tax such a man until he squeals, his employees later on will squeal still more, since retrenchment must follow. Those who are heavily taxed have to retrench, and the whole countryside is thereby affected.

I think that the proposal made by the honorable member for Swan (Mr. Prowse) is just and equitable. I would not . say that it is absolutely the best that could be made, but it is the best that, within my knowledge, has ever been placed before a Parliament. My business is that of a public accountant. I have been dealing largely with taxation matters for the last twelve years, and, speaking from experience, I think a scheme such as that pro posed by the honorable member could be put into operation without very much inconvenience to the Department concerned. At the same time, however, we know that, as has been shown, the Treasurer must have a certain amount of money coming in by way of income tax returns, and if the averaging system is going to reduce that- amount, he will have to make good the deficiency by means of increased rates.

Mr Prowse:

– That would be fair.

Mr HUNTER:

– Yes, but something more remains to be considered. To my mind, we have practically got over the heavy expenditures involved by the war; and we can look forward to a time when the expenses Of government will not be so great, and when, possibly, the Treasurer will not require to raise, by way of income tax, as much as he is raising at the present time.

I propose now to refer to the method of dealing with stock in hand at the end of the period. A motion was submitted from the Opposition side of the House to force the Treasurer to eliminate the valuation of stock at the end of any period. When the- question cropped up last year I spoke and voted against it, for the reason ‘that actual experience has taught me that any man, and particularly a big stock man, who advocates the doing away with such a provision would, as the result of a trial, regret the change. The Queensland Act allowed a man to deal with stock on a purely cash basis, or, in other words, to treat his purchases as debits, and his sales as credits. It is quite possible, under such a system, for a big stock-owner to pay a large sum by way of income tax in’ respect of a period during which he has had a loss, and to pay nothing at all in respect of a year in which he has made a big profit. Under this system, when he sells out his entires stock, every penny that he receives byway of purchase money is treated as income; notwithstanding that he may have sold his stock for less than he paid for it, he has to’ pay income tax on the entire amount so realized by him.. There are still many people throughout Australia whom it is impossible to convince that the system under which they are required to bring their stock into account is correct. There are many men on the land who say that in that way they are being taxed on profits they have never received. I have among my clients many who hold that view. Only one of them has come under the provisions of the State Act. I took out his State income tax figures, spread them over a period of seven years, and showed him that during that period he had paid £1,000 more than he would have had to pay had he taken his stock into account. When I pointed that out to him he naturally wanted to get away from the system, but he could not. In view of the strong demand for eliminating the valuation of stock, I would like the Treasurer to bring in an amendment under which any man who chose could adopt that system, on the . understanding that he could not later on depart from it. There are still in the country many men whom it is impossible to convince that the taking of stock into consideration at the end of the period is right. I propose to mention one case, showing how injuriously this affected a man whom I know. This man purchased a number of sheep at 38s. 3d. per head, and paid nothing by way of income tax that year, although, owing to the fact that he had lambs from these sheep, his profit and loss account showed a profit. Bringing the stock into valuation, as he would do, his profit and loss account showed a profit, but he paid nothing. The following year, owing to drought, he lost his lambs. In order that he might be able to purchase cattle, he sold his sheep and obtained for them only 25s. per head, so that he actually lost 13s. per head; but he had to pay income tax in respect of those sheep, notwithstanding that his profit and loss account showed a considerable loss. I would like to emphasize the fact that the objection which we hear from one end of the country to the other against paying income tax for stock that may never be realized upon, is a real grievance, and many people believe it to be a just one. After giving these people due warning, I would insert in the law a provision similar to that contained in the Queensland Act. There are several methods of valuing live stock, but I think the Queensland method is at the present time’ very’ much the better. In Queensland they value lambs and calves at a quarter the rate of the fullgrown animals the first year. The second” year they are grown up and taken at their full value. Owners have very different ideas of valuation, and in very few cases would it be possible to get unanimity in any district. I know unanimity could not be obtained in my, district. I think it would be very much better if a minimum and maximum value were fixed, and the owners were asked to place a value between those two extremes. It might be said that sheep should not be valued at less than 5s. or more than 15s. If 5s. was chosen as the value, and the sheep were sold at 25s., the owner would pay income tax on a profit of 20s.; and if they were sold at 15s., he would pay tax on 10s. In the first year they would pay the tax on the valuation they had put on. I think a fair value to put on the natural increase is half the average price of the full-grown animal.

Mr West:

– That is very near a cash basis.

Mr HUNTER:

– It is better than a cash basis.

Mr McWILLIAMS:
FRANKLIN, TASMANIA · REV TAR; ANTI-SOC from 1906; LP from 1910; NAT from 1917; CP from 1920; IND from 1928

– Suppose an animal dies ?

Mr HUNTER:

– The result would appear in the profit and loss account. If a man started in business with 1,000 head of cattle, he would have a debit of 1,000 to start with; and if he wound up with 500, he would have 500 in his stock account at credit.

I desire to advocate what is not a new, but a fairly old, proposal regarding taxation in the back-blocks. When we cansider what a man has to put up with in the back-blocks to earn the same amount of income that he could earn in the city, it is reasonable that he should be allowed some reduction from his income tax. We have been told that there will be a reduction of 10 per cent, in all income taxation; but I would have liked to see the primary producer allowed a more substantial reduction than is given to other taxpayers. A man wrote to me who lives 400 miles away from the nearest telegraph station. If he makes £1,000 a year, it is a moral certainty that it will not be of so much use to him as would £1,000 to a man in a city. If we consider the lives that these men have to live, and the expenses that they have to meet, in comparison with the expenses of a man in the city, it is obvious that their earnings will not go so far as a similar amount of money in the city. In some places, a doctor’s visit may cost as much as £80 or £100. I am acquainted with one case in which it cost £80. It was a two-days’ trip, and the doctor did not get all the money. I have heard of other cases which cost considerably more. A doctor’s visit in the city ought not to cost more than £1 ls. The min in the country, who is paying £79 more than the man in the city for the same amount of medical attention, ought to be allowed to deduct that expenditure from his assessable income.

I have referred, particularly, to the people in a large way of business in the back country, but the same statements apply with even greater force to the smaller men. The large men have, for the most part, banks and financial institutions behind them, and these are able to help them in times of stress. The smaller men have not the banks behind them, and have not the assets upon which they can raise an overdraft. There is also the numerous class df man who dreads going to a bank to borrow money. The heavy taxation has been hitting this class particularly. During the parliamentary recess I travelled through almost the whole of the southern part of my electorate. This necessitated nearly 7,000 miles of travelling, without going over the same ground twice. I was struck very much by the absence of any further improvements since I first went there twenty years ago. Fences erected twenty years ago are now falling down ; the houses are not in such good repair as they were then ; the dam3 for the most part are silted up ; and, generally speaking, the improvements are deteriorating. The time is rapidly approaching* when the whole of the back country properties, large and small, will have to be reimproved. The improvements will need to be almost entirely renewed, and very few among the smaller men have the money behind them to enable them to do this. The bad seasons of recent years, coupled with the heavy taxation when there have been good seasons, have been largely responsible for the present position. When a man, who is living in the country makes an income of £800 or £1,000 he is looked upon as a capitalist, and is regarded as “fair game “ by all and sundry. People forget that every penny he makes he puts back into the Country, and thus gives employ ment to those who declaim against him. Those who declaim against men of this type are declaiming against their own supporters. Most people know the position in regard to labour in the country at the present time. Throughout the west country of New South Wales and Queensland, in spite of the’ high wages ruling, labour as a whole is worse off by comparison with that available fifteen or eighteen years ago. There are other matters to which attention could be directed, but, perhaps, they can be dealt with more effectively in Committee.

Dr MALONEY:
MELBOURNE, VICTORIA · ALP; FLP from 1931; ALP from 1936

– I speak as one who has lived in the country as well as in the’ towns, and although - groceries, perhaps, may be somewhat more costly in the more remote parts of the Commonwealth - unless they are supplied to the workmen at wholesale rates - the honorable member for Maranoa (Mr. Hunter) must admit that meat, fuel and other requirements are available at a much lower rate. The rural settler doe3 not have to meet excessive bills for water and other rates, such as the landlords in the city frequently ask their tenants to pay.

Mr Hunter:

– I am not so well off a3 I was years ago.

Dr MALONEY:
MELBOURNE, VICTORIA · ALP; FLP from 1931; ALP from 1936

– The honorable member will always be better off if he has a thumping big income tax to pay. I have never met a man who was unwilling to possess the sum of money on which a large income tax could be levied. The Treasurer of the Commonwealth is in a somewhat unique position, as he is the Treasurer of a whole continent, and has, shall I say, more untaxed: assets at his disposal than any Treasurer in the world. Every one who has gained experience either by travel or by reading has only to recall the numerous items in Australia, which are free of income tax, to realize the accuracy of my statement. It may be in the course of coming years that you, sir, will have to cast around if you retain the position of Treasurer, which you so gracefully occupy, for other sources of income, and will be. compelled to include some which are at present untouched. When the history of the present time is written it will be recorded that Sir Alexander Peacock was instrumental in having a list of incomes prepared; but the good example has not been followed in the Federal sphere. The list included 265 individuals or companies which were indicated by numbers, and when the list was first published, I asked the Treasurer’s predecessor if he would’ follow the example set by a State Minister, but, unfortunately, I was unable to persuade him to do so. You, Mr. Speaker, do not object to your salary being published; neither does the King of England, or men engaged in naval affairs from an Admiral down to an able seaman, or a private or Commander-in-Chief in the Army. A Treasurer’s life could be made happier and easier if incomes were published. I cannot forget, what the great Gladstone once said in the late nineties, when asked by Lord Tollemache, if in the event of war between Great Britain and’ Germany, the shipping companies would bring enemies to England if paid enough lucre. He said, “ I believe that the shipping companies would, for lucre, land enemies in the port of Heaven if that were possible.” An author, whose name I cannot for tho moment recall, also said -

It has been tacitly agreed by economists that while the ethics of the income tax is one of the most just evolved for honest humans it has at the same time found out the weakness of the human and produced more followers of mendacity than any other tax.

In other words the number of non-income taxpayers has been increased “ by those who willfully, or inadvertently, do not tell the truth. The following figures have been taken from the return prepared at the request of Sir Alexander Peacock, and include the years 1914, 1915 and 1916, after which the power of the Flinderslane merchants and financial institutions became so strong that he was not allowed, or perhaps I had better say, he was prevented from extending it: -

There is only one instance, between Nos. 1 and 63, where the income in 1916 was less than in 1914; but in 1915 there was an increase of over £20,000, which made up for the deficiency. In this long list from No. 64 to No. 128, with the exception of one, I cannot see recorded any company or individual whose income did not increase by thousands of pounds. Coming down to the last page, I find No. 262, which did not make anything in 1914, but made £4,896 in 1915, and £20,966 in 1916, and it is a simple problem in arithmetic to ascertain the percentage of profit, if it be allowed that the profit were £1 in 1914, honorable .members will find, if they care to work it out, that this income increased at” the amazing rate of 2,096,500 per cent. If the figures had included 1918, it will easily be seen what the rate would have reached if the profits had continued on the same scale. The information contained in the return is of a startling character, and to me it is one of the most instructive documents presented to Parliament during the last thirty-three years. I hope that our worthy Treasurer, will look into the matter. Every reader of the “ Wild Cat Column “ of the Bulletin, which is so ably conducted, must be aware that large profits are hidden by companies; and private individuals also do not in every case divulge their true incomes. When president of the Commission which inquired into tramway grievances, I had Mr. Sprigg in the witness-box for three afternoons, and yet could not. get from him the percentage paid, say, ten years ago, by the Melbourne Omnibus and Tramway Company on the capital first put into the company. Mr. John Isaacs, barrister and solicitor, who was also a Commissioner, was also unable to get that information. The nearest to it that we could get was that, when the company declared the dividend of 5 per cent., that dividend was really one of 25 per cent. This, however, is, I am sure, a. matter about which the Treasurer and the splendid officials under him are keeping their eyes open. T suggest, for treatment in an amending Bill, that the deductions now allowed are not sufficient. The honorable member for Maribymong (Mr. Fenton) intends to ‘try to improve matters by moving an amendment on clause 23, and I shall defer my remarks upon his proposal until we get intoCommittee. I would remind the Trea. surer, however, that according to Holy Writ, the widow’s mite was esteemed more highly than the gold and costly gifts of the rich, and I would suggest to him that deductions should be allowed in respect of charitable gifts of less than £5 in a single amount. I had a pensioner for seven and a half years in respect of whom I could get no allowance, because each gift was only 15s., and at the present time I have twenty old-age pensioners to whom I give 5s. to raise the pensions to 20s., but I cannot get an allowance for those contributions. I think that the taxation authorities should accept a list, when supported by a statutory declaration, of charitable gifts, irrespective of the amount of each separate gift. Many honorable members of this House give away more than £5 to provide meals for’ those who. come to them, and for these contributions to charity they get no allowance, because the separate amounts’ given are each less, than £5. Their charity is of much more value to the community than the single gift of £5 to an institution. It has been suggested that any one having a little surplus might put it into the hands of a trustee, who would make gifts for him. The adoption of that suggestion, however, would rob the giving of its sacred secrecy. We are told not to let the right hand know what the left hand does in these matters.

I would draw the attention of the Treasurer to two books which have been published lately. One of these is called SeasonableRevolution, by ‘Bertram Pickard; the other is Higher Production, by Dennis Milner, B.Sc. of the London University, perhaps -the most difficult bachelor’s degree to obtain. The writer comes of a wealthy family,, but he has devoted his attention to studying how the curse of unemployment, with its consequent poverty, may be removed. He suggests a 20 per cent, collection from every one earning money. In his preface he tells us that Mr. LloydGeorge, who, perhaps, though justly blamed for some things, does not get enough credit for others - went very near the root of the matter when he told the- National Industrial Conference of 1919 that we need higher production in order that a higher standard of living may be available to every one. but that we shall not get this higher production until (1) every person willing to- work is secure against starvation during unemployment, and (2) until it is made absolutely clear, in some way that every one can appreciate, that higher production will be shared by all classes. *

The writer draws attention to the different positions of two men, equal in ability and skill, who each draw £3 a week in wages. At first sight, that seems perfectly fair; but he follows them to their homes, and shows that one of them is asingle man, who, when he gets home, can change his clothes and go out to a picture theatre, or enjoy himself as he pleases, having no one but himself on which to spend his money, while the other has a sick wife and five children, and has to make every penny of his wages go as far as he can. He proposes that one-fifth of all incomes should be paid into a fund. Thus, the two men earning £3 would each contribute to this fund 12s., but the married. man< would receive-back 8s>. for each member of his family, or 40s.> in all; whilethe unmarried man would receive back only 8s., and would, therefore, give up4s..to the common good. The book con tains a^ table giving a few examples of the way - in which existing relief could be reduced by the adoption of this system. The estimate of saving is as follows: - *>

A man who has an income, and is unwilling to contribute to help those who are without employment, is not a worthy citizen. Our war-time profits tax was a most lenient one compared with that of Great Britain. The four nations which share the British Isles have taxed themselves so highly that they are making ends meet fairly well, and are paying off their war debts. Surely we might follow their example. The book from which I have quoted is a most able attempt to provide for the extinction of unemployment and the horrors of poverty, which dog the footsteps of workers, whether with ‘brain or with muscle. A man with an income of £10,000 could more easily contribute £9,000 to meet his country’s need than another man with an income of only £300, but with a family to support, could contribute £10. Before the crash of the land boom, which hit Victoria harder than any other State, when the Victoria Insurance Fire. Company was paying from 60 per cent, to 70 per cent, dividend on its shares, I made the proposal in this chamber that all dividends over and above 10 per cent, should be divided, one moiety going to the State and the other to a reserve fund, and I lived to hear the late Godfrey Downes Carter say, when the crash came, “ I wish we had adopted your suggestion, because the State would have had to return the half paid to it, and that, with the reserves, would have enabled the companies to weather ‘the- storm.” “ . ;

Nearly 60,000 Australians were killed in the Great War, and many more were maimed and injured. The Bulletin published a splendid picture showing a maimed man holding out a collection-box. Some of the children of the men who paid the supreme sacrifice of life during the war are now helping to pay interest on our war debt. Indeed, the Customs House, with its duties, takes from every consumer in the country ‘ some contribution. As for the relief that the Treasurer proposes where that relief is just, I say, “ Good luck to him.” If in the future receipts and expenditure do not balance, it will be for him to consider the raising of the income tax on incomes beyond a certain amount. I endeavoured to ascertain how many of our rich men contributed to the loans of this country free of interest in its hour of need, and I was told that a paltry sum of £1,200 was so contributed. On the other hand, two workers’ unions that I know of contributed £100, and six separate amounts of £10 were contributed on which interest was not asked. “I believe that over £57,000 in all has been given to the country. The walls of this building or of the Parliament House in Canberra to which the Federal Parliament is to move, could not be emblazoned with a higher scroll of honour, apart from the names of the sacred dead, than one containing the names of these who gave that £57,000. We ought to know their names. I do not often pray, but I believe that if I had a list of their names at the end of my bed, I would follow the example of the old backwoods traveller and say, “ Lord bless them. Them’s my sentiments.” I ask the Treasurer to see whether he can persuade his colleagues in the Government to issue a list similar to that issued by Sir Alexander Peacock. If the names cannot be given, then the numbers might be given, and the secrecy of the Department preserved in that way. Why should not the incomes earned by people in this country be made known? I close with that request to the Treasurer.

Mr FOLEY:
Kalgoorlie

I have for many years held the opinion that it is a moot question whether the Commonwealth and State Parliaments have done the best that might be done for Australia in taking so much from the’ people in the way of taxation. I think the Treasurer is to be congratulated upon, departing, to some extent, from the usual practice of Treasurers, of grabbing at all they can get from any source from which revenue may be derived. If we leave money to the individual to make investments in industry, we shall do more for Australia than by taking it from him by taxation in order to establish a State fund. The truth of this can be exemplified when we come to deal with one or two of the clauses of this Bill in Committee. The Bill is a considerable improvement on the measures it is intended to replace, and the Treasurer is to be commended for an evident desire to be fair both to the taxpayer and to the revenue. He has sought information on this difficult question wherever it might be obtained. He has informed us that he has given consideration to the report of the Taxation Royal Commission, and that he went for information also to Great Britain and to America. It is well for us to make ourselves familiar with the way in which things are done in other countries, and’ the Treasurer is to be commended for the pains he has taken to secure the best possible advice in framing this measure.

It is satisfactory to know that several debatable matters, the decision upon which formerly depended entirely on the Commissioner of Taxation, are in future to be referred to a Board of Appeal. The establishment of such a Board to deal with questions of taxation will be very welcome to “Australian taxpayers, and this Bill as a whole will be even more satisfactory to them. These statements are not to be regarded as reflecting in any way upon the Commissioner of Taxation. He has no doubt tried to be absolutely fair. Having regard to the immense responsibility hitherto placed upon him, he should welcome this measure. A number of amendments are proposed that are merely drafting amendments, which will clarify the various clauses and make them more readily understood. No reasonable objection can be taken to such amendments. They will be greatly appreciated by those who have anything to do with the administration of the law. The Treasurer is to be commended upon his decision to exempt from .taxation repayments included in an annuity. This measure of relief has been long overdue, and I believe it will not meet with opposition from any section in this Chamber. An effort is made in the Bill to prevent the improper use of information by exofficers of the Taxation Department. Recently in Adelaide there was a case in which a man abused his position by the use of information which he acquired as an officer of the Department, and very fortunately he was convicted. Another case of the kind recently occurred in Melbourne, but, unfortunately, in that case the Government were not so successful in their prosecution. It was obvious, from the result of that case, that the sections of the Act dealing with abuses of this kind required strengthening, and the Treasurer is to be commended for the amendments of the law proposed in this connexion.

The averaging of income is a very difficult problem to solve. N/o doubt, any system of averaging that might be proposed would meet with some objection. I have heard the system proposed by the honorable member for Swan (Mr. Prowse), and I am familiar with other systems of averaging incomes. One can prove almost anything with, the use of figures, but having considered very many forms of averaging, and the number of officers necessary to administer schemes of the kind, I believe that the’ scheme proposed by the Treasurer will serve as well as any with which I am familiar. The scheme proposed by the honorable mem ber for .Swan did not commend itself to the Taxation Commission as highly as many of its admirers would like.

Mr Prowse:

– They never considered it.

Mr FOLEY:

– In my opinion, those who were responsible for the scheme -which the honorable member suggested had formulated it before the scheme proposed by the Treasurer was published. I believe that if the accountants who formulated the scheme suggested by the hon,orable member for Swan had had before them the figures submitted by the Treasurer, and the scheme of averaging he has proposed, they would have modified their scheme, and though they would not necessarily have adopted that proposed by the Treasurer, the scheme they would have submitted would have been more in conformity with that proposed by him.

Mr Prowse:

– They had all the figures before them.

Mr FOLEY:

– The honorable member will admit that I know the gentlemen who were instrumental in compiling the figures suggesting the scheme proposed by him.

Mr Prowse:

– The scheme was suggested by myself, and the gentlemen referred to checked the figures.

Mr FOLEY:

– I know almost every one of them. I have discussed matters connected with incomes and mining with every one of the gentlemen who had anything to do with the compilation of the document quoted by the honorable member for Swan. They are accountants, possessing very high qualifications, and they understand business matters from “ A “ to “Z.” On the other hand, the officers of the Commonwealth Treasury had before them information secured from other parts of the world, and were in a position to assimilate that information in the compilation of the scheme presented by the Treasurer in this Bill.

Mr Prowse:

– What document is the honorable member referring to as having been quoted by me?

Mr FOLEY:

– The honorable member will admit that many of the suggestions he has made came from the building in Perth in which accommodation is provided for Federal members.

Mr Prowse:

– I informed the honorable member that the documents were prepared by myself, and the figures Were checked by actuaries in Perth.

Mr FOLEY:

– I think I am pretty nearly right in what I have said. I have put forward suggestions in connexion with mining, and have discussed mining and taxation questions with some of the gentlemen to whom I refer, and though I respect their opinion and know how much it is worth, I say that having compared the system proposed by the Treasurer with that suggested by the honorable member; I am of opinion that the Treasurer’s system would be found to work best, because it would not take an army of civil servants to put it into operation.

Mr Prowse:

– Mine is very much simpler.

Mr FOLEY:

– The members of the Taxation Commission have expressed the opinion that a, system similar to that . proposed by the honorable member for Swan (Mr. Prowse) would require an army of civil servants to administer it. I shall discuss the general question of averaging in Committee when we come to deal with the clauses’ dealing with the matter.

The Bill contains a clause dealing with the taxation of bonus shares. At the close of last session, we Were informed that it was the intention of the Government to do something in the way of relieving bonus shares from taxation. The matter was not dealt with then as many of us would like to have seen it dealt with, but the taxation of bonus shares is dealt with in this Bill in a manner which will be acceptable to ‘everybody who desires only a fair deal. The Treasurer has made it . clear that he will not allow any company to distribute profits for the current year to shareholders as bonus shares, in order that they may be relieved of taxation. That would not be fair to companies and partnerships that are subject to taxation on such profits. At the same time, the Treasurer has made provision for some relief from taxation so far as bonus shares are concerned. In these days, men engaged in business in a big way take certain of their employees into their confidence, and admit them, to a certain extent, to . partnership by giving them extra emoluments in the shape of shares. The Treasurer has provided that business firms may reward their em ployees in this way without detriment to the men receiving the reward in the shape of taxation on such bonus shares as are given to them. So “far as bonus shares connected with mining are concerated, the honorable gentleman has cleared up a matter which has required attention for many years. As one who has represented every . mining district in Western Australia, I can say that the Treasurer’s proposal in this regard will be very welcome to the mining community. In relation to “ walk-in-walk-out “ sales, again the Treasurer has shown that the Government are desirous to taxing only the money a man receives as profit.

Mr Pratten:

– That is not as clear as it ought to be.

Mr FOLEY:

– In any case, it is a matter we candiscuss . more effectively in Committee. If the Treasurer means that one man is to be able to evade the whole of his taxation because of a “walkinwalkout “ sale, we . shall ‘haveto take care, -when considering the clause itself, that we do not permit the Bill to go too far to the disadvantage of others. However, the idea of taxing trading profits only ‘must ‘commend itself to every ‘rightthinking man.

This Bill raises a question of grave importance to ‘the ‘mining industry - I allude to the allowance for depreciation of plant. Twenty-five or ‘thirty years ago the work of the reduction of ores was carried on with stamper batteries andblankets, with the result that much gold was lost for a time on altogether. A little later on the cyaniding process came into operation. It was practised very little in Victoria, because in this State . the ore, or the . gold, does not lend itself so readily to the process. When the Western . Australian, gold- fields broke out, the whole method’ of the reduction of ores was revolutionized, it being found that the description of plant required was very different from any that had previously sufficed. Under the old Act, when a plant was scrapped as obsolete, the Commissioner, and subsequently the Minister, had the right to afford relief to a, man or company who ‘was farsighted enough, and had business ability enough; to realize that fresh methods must be adopted. I have worked on mines in Australia where plant, installed ata cost of £150,000, has had to be scrapped in five years, and other plant to the value of £200,000 put in its place. During the war the greater part of this new machinery was lying on the surface awaiting the remainder,, and, owing to the inability to get the latter from overseas, much of that on the ground had to be usedup as parts in repairs, and so forth. I doubt whether, under the circumstances I have indicated, the Bill before us will afford the necessary relief.

Mr Pratten:

– The honorable member forgets that mining companies so circumstanced may make a deduction from their income; they cannot have it both ways.

Mr FOLEY:

– I am not satisfied that this Bill meets the position. In Western Australia there are thousands of tons of sand containing gold which, as assays have shown, would, if treated by the most scientific and up-to-date methods, show a profit. I wish here to pay a tribute to the present Government for what they did a little while ago, not by Statute, but by administrative act, to give relief to those who are interested in the matter of zinc shavings. The relief then afforded meant all the difference between 2d. and 5d., which, in many cases, means the difference between a profit and a loss. The Treasurer knows the case that I have in my mind, and I recall to him the fact that under the original Act a . man knew his position exactly. I should like to see provided in this Bill some increase in the amount allowed for depreciation. If a man proposed to treat one of the dumps of sand to which I have alluded, he would need plant to the value of, say, £18,000, and for the sand he would, perhaps, pay £6,000; assuming that the sand” to him would realize £15,000, I suggest that he should be taxed only on what the machinery earned, and that the depreciation in the value of machinery, while being used in> the treatment of the sand, should be taken into consideration.

Mr Bruce:

– So it is; he has only to establish the period for which lithe machinery was used, and he is entitled to deduct depreciation over that number of years.

Mr FOLEY:

– I grant that that is what the Treasurer intends, but in the letter I received in reply to the specific case I placed before him, I was informed that there had to be taken into account the manner in which the machinery was used, and, amongst other things, the fact whether or not it was properly protected from atmospheric conditions. Then there is another point to be considered; a small man treating one of these sand dumps would probably work only one shift, while a big company, with uptodate equipment, would work three shifts ; and the greater relief is given in the latter case. While I am positive the Minister desires to be as fair as possible, I submit that his desire is not accomplished by the Bill. I do not wish to speak further on the second reading. Personally, my interests lie in those clauses which refer to mining operations, representing as I do amining constituency ; and may I suggest ‘that if each honorable member confined himself to those . portions of the Bill relating to interests with which he is more intimately acquainted, second-reading speeches would not be so long.

Mr FENTON:
Maribyrnong

. -One of my ob jects in rising is to reply to some remarks made by the honorable member for Balaclava (Mr. Watt) and the honorable member for Parramatta (Mr. Pratten), who, on financial questions, particularly those relating to taxation, are supposed to be experts. The honorable member for Parramatta this afternoon stated that about 18,000 taxpayers out of 388,000 paid £8,900,000 out of £10,000,000.

Mr Pratten:

– For the year 1919-20.

Mr FENTON:

– I do not dispute the figures, but the deduction made from them was that the smaller number of taxpayers practically contributed 90 per cent, of the income tax revenue, and that, with the proposed exemptions under the present Bill, that smaller number would pay practically 95 per cent.

Mr Pratten:

– What I said was that, according to a return of the details of income taxation for the year 1919-20, 5 per cent, of the taxpayers paid about 90 per cent, of the tax received, but that, under this Bill, about 10 per cent, of the- taxpayers would pay nearly 95 per cent.

Mr FENTON:

– At any rate, the deduction was that . 18,000 taxpayers paid 90 percent. of the resultant revenue. I may be regarded as heterodox in my view of these matters ; but, if so,I am heterodox in good company. The ex-Treasurer (Sir Joseph Cook) admitted that after a tax was imposed it was passed on until the rank and file of the community, who are the consumers, paid the great bulk of it. In that I agnee with Sir Joseph Cook. I am going to quote some remarks of the honorable member for Balaclava, because I noticed that in addressing himself to the Budget he somewhat contradicted himself in view of some utterances he made in reference to the Budget submitted by Mr. Andrew Fisher, in 1914. The following is from Hansard of the 11th December of that year : -

Mr Poynton:

– The honorable member’s friends say that direct taxation is passed on to the . people.

Mr WATT:

– The tendency of taxation, direct or indirect, is to settle down on the bedrock value, that is, on the value of human labour. Those of us who have watched the incidence of income taxation and land taxation, or rent taxation, know that eventually the consumer pays.

I think that must be admitted by everybody.

Mr Bell:

– We are all consumers.

Mr FENTON:

– I am prepared to admit that in some cases the landholder may pass on his taxation, particularly if he owns land in city or town areas; he passes it on in the form of the increased value of leases or increased rents. As a rule, however, the farmer, the salaried man and the wage-earner cannot pass the taxation on. , As the honorable member for Balaclava expressed it, in all taxation there is a filtration process. It goes down and down until it reaches bed-rock, and the bed-rock is the worker or the consumer; he is the individual who cannot pass taxation on. That is an argument that cannot be logically answered. It is a matter of common knowledge that a man in a large way of business invariably fixes the price of his goods so that income tax will be included with his other expenses, and the people who buy the goods pay the taxes of the big man.

Mr Maxwell:

– In that case, the man next door, with less income tax to’ pay, would be able to undersell him.

Mr FENTON:

– Does the honorable member for Fawkner not agree with the ex-Treasurer (Sir Joseph Cook), and with the honorable member for Balaclava (Mr. Watt), who has had five years’ experience as Treasurer? Instead of 10 per cent, of the taxpayers paying £8,900,000 out of the £10,000,000 raised in taxation, that tax is passed on for the most part to the rank and file of the community.

Mr Pratten:

– The flaw in your argument is that the business man has to take what he can get for his goods, and not what he would like.

Mr FENTON:

– The merchant generally passes the tax on. There is no escaping from that position. The man who owns city leases or buildings raises his rental charges in order to meet increased taxation. I know of tenants who have been ejected because they refused to pay the increased rents demanded. I have in mind one of the wealthiest families in the community. When taxation was increased, each of their tenants on the expiration of his lease was required to sign an agreement to pay increased rent, because the owners said they had been called upon to pay increased land and income tax. They certainly took the opportunity to pass on the increased taxation.

Mr Pratten:

– If some of the property owners in Sydney could not pass any of it on, they would not get anything at all for themselves.

Mr FENTON:

– Then the honorable member admits that the taxation is passed on. That is clear from the remarks of Sir Joseph Cook and the honorable member for Balaclava, although Mr. Watt seems to have changed his opinion somewhat of late. The ex-member for “Kalgoorlie, who was then member for Coolgardie, estimated that those who owned one-fifth of the wealth of the community paid practically four-fifths of the taxation; while those who owned four-fifths of the wealth paid only one-fifth of the taxation. I have had those figures analyzed from an actuarial point of view, and I find that they are not by any means high; in fact, the proportion is even greater. There are some who speak lightly of the great masses of the community, but I maintain that they are bearing the great bulk of the taxation. The richer classes, that are in a position to pass the taxation on, certainly adopt that course. I have submitted this argument on various occasions at public meetings, and I intend to do so again. I shall tell the people that the present Treasurer (Mr. Bruce) practically extracts from the pockets of the wage-earners and the small land-holders the greater part of the taxation, because the other sections practi- cally become the tax-gatherers by reason of the fact that they pass the taxation on. I am hopeful that the Treasurer will agree to grant exemption in two classes of cases that I shall bring under his notice in Committee.

Mr JOWETT:
Grampians

. - I congratulate the Treasurer (Mr. Bruce) upon his extremely able and lucid statement in introducing the measure. The thanks of the House and of the whole community are due to the members of the Royal Commission on Taxation for their immense and painstaking labours. As the Commission held 118 meetings and examined 191 witnesses, honorable members can judge for themselves the immense amount of work entailed in that important inquiry. Having carefully read the greater part of the three reports presented, and having perused a good many similar reports on taxation published in other countries, I think that the reports of our Commission rank very high indeed in the history of investigations regarding the best methods of taxation. The work of the Commission, . and the fact that the present Bill has been introduced, has excited some hope in the public mind that substantial progress will be made towards securing the best possible method of raising income tax in Australia, having regard both to the equity of the system and the cost of collection. I must confess that for myself I. am a little bit disappointed with what has been so far accomplished. Although something has certainly been done, a very great deal has been left unachieved. It is impossible to go far without recalling the priceless canons of that great Scotch philosopher, Adam Smith - that dear friend whom we all quote and admire so much, but follow so little. I should like to remind the Treasurer of one of those canons, the fourth -

Every tax ought to he so contrived as to take out of and keep out of the pockets of the . people as little as possible over and above what it brings into the public Treasury of the State.

We should ask ourselves whether our income-tax system, and the methods of collection throughout Australia, conform to that well-known standard. I am afraid that they do not. One reason is the excessive cost of collection due to duplication and overlapping, both by

Commonwealth and State administrations. What steps, if any, are being taken under the Bill to bring about an Amelioration of those conditions’, so that the people may have, if possible, only one taxing authority, at all events in each State, and one system of taxation?

Mr Prowse:

– To unify the incidences.

Mr JOWETT:

– Yes.

Mr Bruce:

– To harmonize them.

Mr JOWETT:

– I quite-agree with both expressions. Our object should be to unify and harmonize administration.

Mr Prowse:

– The great thing is how to do so.

Mr JOWETT:

– It is with a desire to help the Treasurer to do so that I propose to offer a few brief remarks on this important subject. The first fact is that great savings would be effected. Last week the Treasurer told us that if we changed the Commonwealth system to that employed in Victoria we could save £100,000 per annum, at least, in administrative expenses, but he added that the Commonwealth would not do so, because the Victorian system was regarded as inequitable. Here, at any rate, is £100,000, which, so to speak, has “gone to the pack,” because the Commonwealth authorities think that their system is much superior to that adopted in the State of Victoria. I admit that the Commonwealth are supported by the recommendation of the Royal Commission on Taxation, who were unanimous in not approving of the Victorian system. Some very interesting evidence upon this point is contained in the report of the Royal Commission in question. I must confess that I would not have been quite so familiar with many of these matters, but for the fact that, recognising the great ability of the members of the Commission and their enormous industry, I have taken the opportunity of reading . their report very carefully. In their second report, page 71, paragraphs 208 and 209,. they say -

At the same Conference (1919) - between the State and Commonwealth authorities - the then Commonwealth Treasurer, the Eight Honorable W. A. Watt, offered, on behalf of the Commonwealth Government, to collect the whole direct taxation of the States at one-third of the present cost to the States.

That was a very remarkable offer and indicates what enormous savings might possibly be obtained if we could arrive at a uniform basis of taxation, and one common taxing authority for Australia. However, the Commonwealth’s offer was capped in an extraordinary way by the representative of the Government of Victoria. The . Royal Commission’s report says -

On behalf of the Government of Victoria the Treasurer of that State, the Hon. W. M. McPherson, made a counter offer to that of the Commonwealth in these words, “ I am prepared to offer that Victoria will collect your (Commonwealth) taxation in Victoria at half what it is costing you at the present time.” The Commonwealth Treasurer replied, “I have thought it over, and I rejected it for reasons which I explained to the House of Representatives.”

The report of the Royal Commission gives the reasons why our former Treasurer could not accept Mr. McPherson’s offer, and here is one of the lions in the path. Our former Treasurer in the course of his explanation to this House said -

There are many people who, like most companies, do business all over Australia or in many of the States. If we decided to allow the States to collect the taxes to-morrow there would still have to be a Federal Office to collate those people who make perhaps £1,000 in New South Wales, £12,000 in South Australia, or £500 in Victoria, and graduate their taxation in the Federal account.

Mr Bruce:

– I think that the word should be “ aggregate.”

Mr JOWETT:

– I think the Treasurer is right. The incomes would have first to be aggregated in order to be graduated. Our former Treasurer went on to say -

It is impossible for us, ifwe are in the direct taxation business - “ If.” That is an important word - to delegate our authority to the States and hope to do so economically.

I direct careful attention to this lion in the path, because it is a very big lion indeed. Owing to the fact that the Commonwealth have different ideals of taxation and different methods of collection, it is impossible to have one uniform basis of taxation and one common taxing authority in Australia. If we are to secure efficiency in such matters and reasonable and decent economy in administration’, every one should be prepared to reconsider- views that stand in the way of bringing about such a desirable result. There is no doubt that if the individual States were to collect income tax in. their ordinary way there would be no aggre gation of the separately earned State incomes of a man who drew £12,000 in South Australia, £1,000 in New South Wales, and £500 in Victoria for the purpose of graduating his rate of tax.

Mr Bell:

– That is the fact which stands in the way of reform.

Mr JOWETT:

– There is no doubt it is an aspect of the case which should be very carefully studied by this Parliament, and I intend to show that in this particular instance the graduation system is in the highest degree injurious to the people of Australia. The man who makes £12,000 in South Australia is probably in a big way of business; that is to say, he has ample financial resources. If some one suggests to him that he should open a branch of his business in Victoria or New South Wales, and shows him that by doing so he could with very little trouble make £2,000 in either State, his reply is, “ If you start, the business by yourself and earn £2,000, you pay income tax on that- £2,000, and only at the rate applying to that assessment’; but if I come in as a partner I should have to pay income tax on my share of that £2,000, not at the rate applying in Victoria, but at the highest possible rate, because it would be added to the income I am already making in South Australia.” The Treasurer will thus see that this system of aggregating incomes in the different States for the purpose of the graduation of the rate of tax acts as a deterrent to industry. If that South Australian business man, instead of investing his money in Victoria, listened to a suggestion to extend his operations to New Zealand, he would save all this aggregation and graduation of his income. This system of aggregation for the purposes of graduation which our former Treasurer quoted as an objection to entering into a proper system of coordination with the State authorities for the collection of income tax, is a. lion in the path that should have been removed because of the injury it is doing to the people of Australia, and which it is likely to continue to do.

Mr Pratten:

– It is the stumbling block.

Mr JOWETT:

– It is, and that is why I ask honorable members to seriously consider the question. There is no real advantage in continuing a system of aggregating incomes earned by individuals or companies in different States. How much is derived from this system - which in any case we are not entitled to get ?

Mr West:

– We are. When the States federated, lines of demarcation were abolished.

Mr JOWETT:

– The honorable member has given the strongest possible argument for the removal of this absurdity. He seems to be under the impression that when we adopted Federation we adopted Unification. We did not. There are still six separate States in Australia, and the lines of demarcation have not been removed. As a matter of fact it is because we are a Federation that there ought to be no aggregation for taxation purposes of incomes earned separately in separate States by persons carrying on business in more than one State. We have no right to adhere to a system which tends to discourage a business man, say, in Adelaide, from opening a branch of his business in Victoria. The continuation of the present method works a serious injustice upon the people both as regards development of business enterprises and the employment of people.

Again, referring to the question of excessive cost of collection, I find in paragraph 222 of the report the Queensland Commissioner refers to some correspondence which he had with the Federal Department, and reaches the conclusion that the offer of the Commonwealth to collect the taxation of the States at onethird their present cost could not be carried out. In paragraph 222 the report of the Royal Commission goes on-to say -

This view may be compared with the offer . . of the Victorian Treasurer to collect in Victoria the Commonwealth’s direct taxes at one-half of the present cost to the Commonwealth. Assuming the respective offers of the Commonwealth and the State of Victoria to have been based upon an adequate study of the position, they are very important as indicating the very large waste of public money involved in the continuance of the present separate administration of direct taxation.

That opinion is supported by the view of the South Australian Commissioner, as expressed in paragraph 225 - .

The South Australian Commissioner, however, gives special emphasis to the question of coat of collecting. According to his statement, during the year ending 30th June, 1920, the Federal income tax collected in South Australia was £639.211, the staff employed numbering 156. while the State Office” collected £682,334 with a staff of 40. He adds:- “ On the face of these figures it is incomprehensible that the Federal Depart ment can collect the revenue at a cheaper rate than the State.”

Then again we have this view further substantiated in paragraph 227 -

Cost to the taxpayers cannot be reckoned only in terms of the amounts which the Commonwealth and State Estimates show as the charge upon the Consolidated Revenue of the respective Governments for the maintenance of their Taxation Departments. That cost is indeed very heavy, amounting to £750,000 per annum. But over and above this there is the cost to the taxpayers for skilled assistance in the preparation of returns and in complying with departmental requisitions, which was estimated by one witness to be not less than £1,000,000 per annum.

I mention this in order to show the enormous disadvantage to the people of Australia of the present system of duplicated collection. I am, sure the present Treasurer (Mr. Bruce) must feel the position most keenly when he realizes’ what a waste of public money ia involved in the cost of collection1 of these taxes,, and what an enormous saving- could be effected in administration, and trouble saved the taxpayers in the preparation of their returns, if we could secure co-ordination.

Mr West:

– When we have a Government strong enough we may expect that reform.

Mr JOWETT:

– I do not think it is a question of strength of Government.

Mr West:

– What else?

Mr JOWETT:

– If I may say so, I think a, certain lack of consideration for the interests of the people is barring the way to this desirable and useful reform.

Mr Pratten:

– The honorable member is quite right.

Mr JOWETT:

– Even my honorable friend the honorable member for Parramatta (Mr. Pratten), who has been but a short while in this House, but who, I hope, will be here for many years to come, is moved by this lack of concern which is sometimes shown by honorable members, even in this House. Why is it. that we cannot come to some agreement in this matter? Every Treasurer, I understand, has tried to arrive at some workable understanding, and none, I venture to say, has tried more earnestly than the present Treasurer to secure co-ordination between the Commonwealth and the States.

Mr Bell:

– The harmonization of the law is necessary. The Commonwealth alone cannot bring that about.

Mr JOWETT:

– I thank the honorable member for his interjection. The Commonwealth alone cannot -accomplish this, and the Commonwealth should not be expected to do it. These are not the days for the use of the bludgeon by any people. These are not the days when those in charge of any affairs can threaten that unless- some other Governments agree to a certain definite course of action they will be held up to public ridicule.

Mr Bruce:

– If the honorable member is alluding to the present Administration he is quite wrong.

Mr JOWETT:

– I assure the Treasurer that I was not alluding +.0 any special Administration in my somewhat general observations under this heading. The real trouble, I think, lies in the’ fact that, while the States prefer one system of collection, the Commonwealth, alone I” believe among the leading countries of the world, collects its income tax at the point of distribution.

Mr Pratten:

– It follows the money.

Mr JOWETT:

– I thank the honorable member for Parramatta. The States, as . I said, prefer to tax incomes at the source-

Mr Hector Lamond:

– Which is cheap and unjust.

Mr JOWETT:

– It is certainly cheap, but it is certainly not unjust. If the honorable member for Illawarra will do me the honour of listening to what I have to say, I think I shall be able to convince him that the system adopted by the States is more just than the method favoured by the Commonwealth Government.

Mr Pratten:

– And considerably more efficient.

Mr JOWETT:

– Infinitely more efficient. It is much more economical and much more just, as willbe admitted by any honorable member who has carefully read the reports of the Royal Commission, not only that which was unanimously agreed to by the Commissioners, but also the reservations made by men of marked ability on that Commission.

From 1803 up to the present time, a period of 120 years, the method adopted by the British Government for the collection of income taxation is exactly opposite to that employed by the Com monwealth Government of Australia. The British Government collects its income taxation at the source, with allowances and rebates to those taxpayers who, as members1 of companies, have been taxed at a higher rate than otherwise they would have been. Perhaps I may be. permitted to explain the system in some detail. Let us assume, for the sake of -argument, that a company pays in dividends £55,000 per year.

Mr Bell:

– To 55,000 shareholders?

Mr JOWETT:

– I am glad to think that the honorable member has dipped deeply into this problem, and is interested in what I have to say, but I prefer to state my argument in my own way. Let us assume that a company pays, in dividends, £55,000 per year to shareholders with varying holdings. In the case of a man owning a thousandth part of the company’s share capital, his income from thatsource would be £55 per year. It is the practice of the British Government to tax a trading company as though it were a private individual. Indeed, no one has ever been able to show why it shouldbe treated in any other way. A company, by reasonof its larger capital, may be able to buy more cheaply than a private’ individual, and may thus have some advantage over him. The individual shareholder, whose income from the company would be only £55 per year, might be exempt from taxation on his personal exertion income, and under the British system all he would be required to do would be to furnish a return showing the whole of his income and, if he were not exempt, he would get a rebate on his proportion of the amount which the company had paid in taxation in respect of his dividend.

Mr Bell:

– That is not a very economical method.

Mr JOWETT:

– It is more economical in [administration than . the Commonwealth system. I can quote quite a number of interesting statements in support of this contention. It is stated on page 126 of the report of the Royal Commission that -

In 1905 a Departmental Committee, and in 1906 a Select Committee of the House of Commons, were appointed to Inquire into and report upon various phases of the income tax, and in each case the Committee considered, among other things, the method of taxation at the source -

That is the British system, which is totally opposed to our own - and recommended its continuance. The British Royal Commission on the Income Tax, which reported in ‘1920, stated that, “Taxation by deduction at the source is of paramount importance, lying, as it does, at the very roof of our income tax system . . . We are convinced that to abandon taxation at the source now would involve an enormous loss of revenue, and would throw upon scrupulous, honest, and careful taxpayers an unfair share of the burden imposed by the taxation necessary for the country’s needs. We are not satisfied that any system of ‘ information at the source’ would be a practical and efficient substitute for the present system.”

That was the unanimous report of the British Royal Commission, after hearing evidence, and here is an extract from the evidence taken by it -

One of the British Commissioners of Inland Revenue, in evidence before the British Royal Commission, stated: “Taxation at the source is the primary safeguard against evasion of duty, because at deprives the taxpayer’ of opportunity .to escape, cither by carelessness or by ignorance or by fraud, from payment of his due share of income tax.” -

There they tax a company on the whole’ of its profits as they do the individual, and no shareholder can escape payment of his due share of the tax - “It is obvious that at any time and in any circumstances abandonment of the system would result in a heavy loss, and that at the present day when the exceedingly high rates of duty alford an unparalleled temptation t3 the taxpayer to give himself the benefit of the doubt, and even wilfully to evade the tax, abandonment of the system would be disastrous “ -

The reference is to abandonment of the system of taxation at the source - “In my judgment, the abandonment of the system would result in a dead loss to the Exchequer of upwards of £50,000,000 a year.”

The Commissioner, after a prolonged experience of that system of collecting taxes, came to the conclusion that to abandon the system and to adopt one like our own would mean a dead loss of £50,000,000 a year.

Mr Bell:

– The Commonwealth Treasurer recognises the possibility of loss of revenue, but he wants to be just to the individual.

Mr JOWETT:

– Under the British system, meticulous justice is meted out to every individual. Let me explain to honorable members the system followed in Great Britain. There a taxpayer .receives his dividend, tax free, in the ordinary course. The company which ha3 paid taxation on -an assessed income of, say, £55,000, in the same way as the individual, supplies the Income Tax Commissioners with a list of all its shareholders, and the shaves held by them, so that by reference to it they are able to see at a glance the proportion of the company’s profits to which each shareholder is entitled. ‘A shareholder who is in receipt of, say, only £55, and is free of income tax, then applies to the Income Tax Commissioners for a refund of his proportion of the tax paid by the company, and he gets it. Nothing could be fairer. There may be complaints as to certain aspects of the British system, but no one, as far as I have been able to ascertain, has ever complained that it is unjust. So much by way of reply to the honorable member for Darwin (Mr. Bel, who, I am glad to see, has been following me very closely. He must now be convinced that” the system I propose, and which was recommended by three of the Commissioners out of seven, namely, taxation at the source, with a rebate to all taxpayers of any tax collected in excess, is quite as fair as and infinitely more efficient than that provided for in the Bill. The British Commissioner I have quoted was of the opinion that the adoption of any such system as we have in force in Australia would mean a loss of £50,000,000 a year in Great Britain. That is the great stumbling block in the way of bringing about a uniform system of taxation between the State and Federal authorities. So soon as the Federal authorities are prepared to reconsider this question of taxation at the source as compared with taxation at the point of distribution, the principal lion in the path of the collection of taxes by the one authority will be removed. This will give enormous relief to the taxpayers of Australia and to the greater efficiency of the tax-collecting machine.

I have occupied so much time- and I trust it has not been wasted - in endeavouring to point out what in my opinion is the only means by which we can bring about the co-ordination and simplification of taxation that I. shall not be able to deal very fully with several other important points. I support the amendment of which- notice has been given by the honorable member for Swan (Mr. Prowse). ‘ The amendment is designed to introduce what the honorable member terms the true averaging system as compared with the averaging system embodied in the Bill. The system of the honorable member for Swan is that of levying on the income of the year, and not on the average rate. At the same time, I am ready to admit that the system which this House adopted at the end of last year, by which we introduced the averaging of the rate, but not the averaging of the income, was a great step in the right direction. It applied only to primary producers, but I would remind the House that the primary producers never asked that it should be applied exclusively ‘to them. They asked that it should be applied to all the taxpayers of Australia whodesired it. The measure was passed in the closing hours of last session, when we were being driven almost as hard as we are at the present moment to agree to hasty legislation, and I . (have no ‘doubt that it was owing to lack of time that the application of that system of averaging to the whole of the taxpayers of Australia was not then considered. A valuable measure of relief, however, was given to the primary producers. I am glad to see that the Treasurer has decided to extend that measure of relief to the whole of the income taxpayers of the Commonwealth. It is only right that we should. But while we accept this as -a step in the right direction, it does not fully express our desire that taxation . should be levied on the average income which a . man earns, and not upon the income of one particular year. It is . now something like 120 years since the British authorities introduced the system: of taxing on the basis of the three years’ average income, and they have not seen ‘occasion to alter it. It is quite true that in the report of the British Royal Commission of . 1920 it was stated that some people were opposed to the averaging system. It is easy to see why they were then against it. They had been in receipt of very ‘large incomes during the war and the post-war period, and were entering upon *a time when their incomes would be enormously reduced. In such circumstances, a great many people naturally did not wish to pay the tax on incomes, which, in reality, for the year, were very small, but which, averaged with the high incomes of the previous years, made their rates of tax very heavy. Although that point of view was put forward in evidence before the Royal Commission, the Government of Great Britain did not adopt it. Eventually a number of important bodies, such as the Manchester Chamber of Commerce, said that after giving the matter the fullest consideration they agreed that the averaging system was the best. It still remains the law of the land, and, in , my opinion, is not likely to be altered, except, perhaps, in the direction of amelioration to the taxpayer.

In this matter, although we speak as primary producers, we speak also on behalf of the whole of the taxpayers of Australia. The first canon, of Adam Smith should be carefully bornein mind. It is to the effect that the taxpayers should pay ; as nearly as possible, in proportion to the revenues’ which they respectively* enjoy under the protection of the State.

Mr Hector Lamond:

– How does the honorable member reconcile that statement with his objection to graduation?

Mr JOWETT:

– I am not prepared to deal with that just now; but, apart from the question of graduation, no one would contend that a man. who is engaged in a hazardous occupation, with a fluctuating income, should pay a higher rate than does a man with a fixed income. The only way by which we can avoid this gross injustice of charging people in hazardous pursuits a higher income tax is by adopting the averaging system.

Mr Considine:

-Is the honorable member referring to miners?

Mr JOWETT:

– Both miners and those who represent . miners are engaged in hazardous pursuits. The primary producers of Australia, and those who are connected with the industries which are dependent upon them, and all who sympathize with them, will never be content until they get a system of levying the tax on an average of five years’ income.

Mr West:

– Would the honorable member apply that to everybody?

Mr JOWETT:

– I would apply it to every class of taxpayer. The system is ‘ just, and it should be uniform and applied to all.

There is, in the Bill, an alteration in the method of valuing live-stock. Clause 16 of the Bill states -

The assessable income of any person shall include -

  1. profits derived from any trade or business and converted into stockintrade or added to the capital of or in any way invested in the trade or business :

Provided that for the purpose of computing such profits the value of all live-stock (not being live-stock used as beasts of burden or as working beasts), and trading stock (not being live-stock) not disposed of at the beginning and end of the period in which the income was derived shall be taken into account;

For the purposes of this paragraph “value” means -

in the case of live-stock (not being live-stock used as beasts of burden or as working beasts ) - the values as prescribed; and

in the case of trading stock (not being live-stock) - the actual cost price or market selling value of -each article of trading stock, or the price at which each article of trading stock can be replaced, at the option of the taxpayer.

Mr Bruce:

– The honorable member is not so innocent or so surprised at what he is reading as he would lead us to suppose.

Mr JOWETT:

– I have no knowledge as to why this is done. I would like the Minister to explain why the owners of livestock are to have less choice of methods, and to be placed in a less favorable position than merchants and traders in other goods. I am asking in all innocence, because I do not know. I have read very carefully the clauses of the Bill, and I am not clear as to the limitations of the system which allows the authorities to prescribe the values of live-stock. I particularly wish the Treasurer to give his attention to the following question, which has been put to me by people who havehad to send in returns: -

In the case of valuation by the authorities of the same live-stock at the end of one period and the beginning of the next, would not clause 16 give the authorities power to value such live-stock to the disadvantage of the taxpayer ata. higher price at the beginning of one financial year, -instead of at the valuation adopted at the end of the previous financial year?

It may be that there is some provision in the Bill which would enable the authorities to do this; but my friends who’ have asked me to raise ‘the question have not been able to discover it. I am not implying that the present Commissioner would think of doing such a thing, or that the present Treasurer would allow it to be done; but in these days of uncertainty the interests of a very important section of the community should be protected in our Statutes. If, for example, values were fixed at the end of one financial year at 8s., and a taxpayer had been charged on the stock on the basis of 8s., he might be told that for the beginning of the next financial year he would only be allowed a basis of 6s. In that way he might be taxed twice to the extent of 2s.

Mr Bruce:

– I have stated that the owner would have an option between a minimum and a maximum.

Mr JOWETT:

– That is so, within prescribed limits. I wish the Minister could assure me that there is no possibility of such a thing happening as I have indicated.

Mr Bruce:

– There would be no possibility of a man being required to bring in his stock, at the commencement of a period at a different rate from that operating at the close of a previous period.

Mr JOWETT:

– I am very glad to get that assurance. I shall be pleased to support the second reading of the Bill. I welcome it as -a. step in the right direction, and I trust that before many years are over we shall be able to realize our ideal, and adopt a stillfairer method of taxing incomes than we have at present.

Question resolved in the affirmative.

Bill read a second time.

In Committee:

Clause 1 agreed to.

Sitting suspended from 6.30 to 8 p.m.

Clauses 2 and 3 agreed to.

Clause 4 -

In this Act, unless the contrary intention appears - “Income . . . does not include

any rebate received by a member of a co-operative company based on his purchases from that company where the company is one which usually sells goods only to its own members; and

Mr CHARLTON:
Hunter

.- During the second-reading debate, I intimated to the Treasurer (Mr. Bruce) that I would endeavour to have this clause amended in order to give some concession to members of co-operative societies.

Paragraph, c was inserted when the last Income Tax Bill was under consideration, largely in response to requests submitted by several, honorable members, with the idea of placing the members of co-operative societies in a better position than they, had previously been. Difficulty has, however, been experienced in working under the Act in its present form; and the representatives of many co-operative societies have suggested that it might be further amended so as to make it quite clear that the rebates received by members of these societies shall not be taxable. The paragraph contains these words: “… where the company is one which usually sells goods only to its own members.” Some cooperative societies consisting of, ‘ say, 1,500 or 2,000 members may grant rebates to ten or fifteen old-age pensioners who are non-members of the society, and, because they do so, all the rebates received by other members are taxed. I do not think that Parliament intended that. The provision was framed to protect workers who paid into such societies, and who, after the working expenses had been met, received a small rebate. It is regarded as being a double tax, and the Committee and the Government at that time intended to protect those who were members of such societies; but, unfortunately, the Act is not working as intended, and a good deal of trouble has occurred. Quite a number of co-operative societies have been summoned by the Department, and when the matter was brought under the notice of the Commissioner, he said that he was complying with the law, and pointed out that the cases involved referred to societies which did not confine their business to members. In some cases, only a handful of non-members are concerned, and, on representations being made, the Commissioner allowed the matter to remain in abeyance for the time being. The position could be met by leaving out the words, “where the company is one which usually sells goods only to its own members.” The paragraph would then read -

Income . . . does not include (c) any rebate received by a member of a co-operative company based on his purchases from that company.

The society to which I belong has removed from its list of customers all those who are not shareholders, and I have been informed that only fourteen or fifteen were concerned.

Mr Maxwell:

– Does the Commissioner base his case; on the use of the word “usually [‘1

Mr CHARLTON:

– Yes . In some instances the societies have taken my advice and allowed their rebates of, say,1s. in the £1 to remain until sufficient has accumulated to enable them to become shareholders. The representatives of quite a number of societies have complained because they do not get much relief from the amended provision, and I trust the Treasurer will be prepared to move an amendment in the direction I have indicated.

Mr Bruce:

– I am afraid I cannot accept the proposed amendment.

Mr CHARLTON:

– Then I move-

That the words “where the company is one which usually sells goods only to its own members” be left out.

Mr WATKINS:
Newcastle

.- I cannot understand why the Treasurer (Mr. Bruce) will not accept the amendment moved by the honorable member for Hunter (Mr. Charlton), because it will make the position clearer than at present, and provide what was originally intended. As the Leader of the Opposition pointed out, it was the intention of Parliament that the members of co-operative societies should be’ exempt in this regard. As honorable members are aware, rebates are allowed upon the purchases made by members of co-operative societies when the revenue exceeds the expenditure, and taxation could be evaded if a profit were not declared. Most of the co-operative societies have been established in industrial centres for the benefit of their members, and I believe every honorable member is in favour of encouraging co-operative concerns. The paragraph has been interpreted by the Commissioner in such a way that the benefit which it was intended to confer is not available.

Mr Maxwell:

– The official interpretation seems rather a strange one.

Mr WATKINS:

– It is.

Mr Watt:

– Has the honorable member heard of many cases of taxation being levied under the present provision?

Mr WATKINS:

– Quite a number.

Mr Watt:

– Inthe shareholders’ schedule ?

Mr WATKINS:

– Yes. The Leader of the Opposition and I have been appealed to from ‘time to time by the representatives of different societies in connexion with this particular matter, and I trust the Treasurer will agree to the amendment submitted:

Mr ROBERT COOK:
INDI, VICTORIA · VFU; CP from 1920

.- I support the amendment. I would like the Treasurer (Mr. Bruce) to define a “ co-operative “ society, because the members of genuine co-operative, societies should be exempt, whereas the members of sham co-operative concerns should not be considered.

Mr BRUCE:
Treasurer · Flinders · NAT

– Everybody is anxious to assist a genuine co-operative society composed of members who have come together to make their purchases on the best basis and in a true spirit of co-operation. If I were to accept the amendment moved by the Leader of the Opposition (Mr. Charlton) the door would be thrown open to societies which could not be described as genuine co-operative concerns. The co-operative idea, surely is that of men coming together for purchasing on a cooperative basis, and after obtaining goods at the lowest possible price, receiving a rebate from the society, if . the price they have actually paid is more than the goods have cost. “ That is a genuine and true saving. It is not income in any sense, because their own incomes have been charged in their assessments. We have every “sympathy with such people, and are only too desirous to help them:. If the rebates of a co-operative society are drawn, even to some extent, from the profits of sales to non-members, they are not true savings, nor is the co-operation true co-operation of the kind that we desire to exempt.

Mr Maxwell:

– Even when the selling to outsiders is infinitesimal?

Mr BRUCE:

– Broadly speaking, when the rebates come from, profits of sales to non-members, it is not true co-operation ; and the exemption is based on the assumption that there is true co-operation: that the co-operative society which gives the rebates deals only with its own members, and that the rebates are the genuine savings of those members. But the provision is not absolutely rigid, and to cover the cases in which for some reason or other the society has to sell some part of its property to outsiders the words “ usually sells goods only to its own members “ are used. Those words the Commissioner thinks cover any small outside sales not of a regular nature that may be made.If a co-operative society trades regularly with outsiders, though only to a small extent, it is impossible to grant an exemption in respect of its rebates. Were we to exempt the rebates of co-operative societies selling to only ten or twelve outsiders, we should be faced with a demand for a similar exemption in respect of the rebates of co-operative societies selling only to thirty or forty outsiders, until in the end we should have ordinary joint-stock enterprises turning themselves into co-operative enterprises for the benefit of their shareholders, the whole of their rebates being in fact profits made on sales to outsiders. We have every sympathy with cooperative societies, but it is impossible to open the door to . a few regular outside purchasers without opening the door to many more, or placing on the Commissioner a very wide discretion. I think it is the opinion of the Committee that the Commissioner’s discretion should be limited as much as possible, and that we should, where we can, provide for cases by positive law. A true co-operative society trades only with its own members, and the rebates given to the members of such societies are absolutely exempt from taxation. It is the desire of Parliament that they should be so exempt. I think that the wish to give assistance to true cooperative enterprise, by not taxing a second time what are genuinely the savings of co-operative purchasers, has been achieved.

Mr Maxwell:

– I understood the Minister to say that the word “ usually “ covers the cases where the outside sales are infinitesimal.

Mr BRUCE:

– Certainly. It gives discretion to the Commissioner in such cases.

Mr Atkinson:

– Is there anything in the clause which is not in the Act?

Mr BRUCE:

– The Act as amended last December provides for the exemption of the rebates of co-operative societies.

Mr JOWETT:
Grampians

.- I think that the amendment should be pressed. If the words that the Leader of the Opposition (Mr. Charlton) wishes to omit are left out of the clause, it will simply be provided that income does not include any rebate received by a member of aco-operative society based on his purchases from the society. In no case can a rebate, on purchases be regarded as income.

Mr Bruce:

– Yes, it can, if the making of the rebate becomes possible from the fact that the society is earning profits by sales to outsiders.

Mr JOWETT:

– If a rebate is based on the purchases of the members of the co-operative society, it cannot include any profit made by the society on sales of goods to outsiders.

Mr Watt:

– If half the turnover of a co-operative society was due to sales to non-members, that might increase its rebates tremendously.

Mr JOWETT:

– If the exemption on rebates is to be restricted to the rebates of co-operative societies which do not sell goods at all to outsiders, the members of but very few of . these societies will be benefited. There is hardly a cooperative society in Australia which does not sell to outsiders. The, Army and Navy Stores in London is a co-operative society, but the friend of a member of that society can buy goods with, cash by mentioning the name and number of his friend.

Mr Watt:

– Any one can walk in out of. the street and buy over the counter there. I have done it, and thousands of others have done it.

Mr JOWETT:

– That supports my contention that it is practically impossible for a co-operative company to carry on without selling to outsiders. If all cooperative companies which do that are to bo regarded as ordinary trading concerns, and if the rebates given to their members are to be taxed as income, then for all practical purposes we deprive membership of these societies of one of its advantages.

Mr WATT:
Balaclava

.- I was surprised at the statement of the Leader of the Opposition (Mr. Charlton) that this matter is of importance to the members of co-operative societies in the district from which he comes. I can imagine that big co-operative traders in wholesale lines, such as co-operative butter factories, might perchance be considerably affected, but not the members of small co-operative grocery stores, co-operative . butchering establishments, and the like. WhenI was in office, I consulted with the honorable member with the desire to frame some amendment which would meet his wishes, and I think I was instrumental in bringing matters pretty well to where they stand now. I believed at the time that the difficulty had been effectually solved. A working man who has shares in a co-operative society may, in the course of a. year, expend £100, oreven £200, in purchasing goods for his family. If the rebate given to him is 10 per cent., and I think that is above the average–

Mr Charlton:

-The rebate, as a rule, is about 2s. 6d. in the £1.

Mr WATT:

– That is121/2 per cent. Let us suppose, however, that a member of a co-operative store buys annually £200 worth of goods, and is given a rebate of 10 per cent. That rebate amounts to only £20. On that £20 he is not taxable, for in most cases the members of these small co-operative societies do not pay income tax at all. There are very few of them who would be getting £200 a year.

Mr Bruce:

– Under the Bill incomes up to- £200 will be exempt from income taxation.

Mr Charlton:

– In my district there are few who get less than £200 a year; but that is not a living wage now.

Mr WATT:

–There are many districts in this State with which I am acquainted” where most of the members of these societies will be exempt from income taxation. Therefore, we should not exaggerate the importance of. this matter, or dwell too long on it. Not very many persons are likely to be affected, and those whose rebates will not be exempted will not be very hard hit.

Mr Bruce:

– A man having two children will enjoy an exemption of £260.

Mr WATT:

– Yes. If, however, the Treasurer wishes to meet this case, I think that it can be met. He objects, asvery administrator must do, to a paid officer being given more discretionary power than is necessary. Of course, neither an Income Tax. Act nor a Land Tax Act could be enforced without giving some discretion either to the Minister orto some permanent official. This clause, as the Treasurer has said, gives discretion to the Commissioner. But if we are going to allow the Commissioner to say, “This is a co-operative society that usually sells to outsiders, and that is one that usually does not sell to outsiders,” we might go a step further and substitute for the words - where the company is one which usually sells goods only to its own members - the words - where the Commissioner is satisfied that the company is operating on bond fide cooperative principles.

Mr Charlton:

– I do not object to that.

Mr WATT:

– That would provide for a different kind of discretion, by enabling the Commissioner to separate the practically pure co-operative enterprises from the mongrel co-operative enterprises that are growing up in some parts of Australia. If you give large exemptions of this kind, it may tend to encourage the formation of societies which are nominally co-operative, but which are really only called co-operative in order that their shareholders may evade taxation.

Mr Poynton:

– Would what the right honorable gentleman suggests prevent a cooperative society of ten members from enjoying an exemption on its rebates, although it sold to 1,000 outsiders?

Mr WATT:

– Yes; if the Commissioner exercised his discretion properly. I take it that the Commissioner would draw up some regulations which would give him room to move, allowing exemption from taxation on rebates of innocent cooperative societies that did a small innocuous trade with outsidersbut taxing the rebates of so-called co-operative companies which sought to evade taxation. I think that that discretion might safely be intrusted to the Commissioner.

Mr FENTON:
Maribyrnong

– I support the amendment moved by the honorable member for Hunter (Mr. Charlton). I may remind honorable members that throughout the dairying districts of this State, and I presume the same maybe said of the other . States, nearly every big co-operative butter company is carrying on a co-operative store as well as a butter factory. In Victoria, the butter factory companies, . although, co-operative, have been formed and registered under the Companies Act. There are other co-operative companies which have been formed under the Provident

Societies Act. I do not know whether it is intended that there should be a distinction made between the two.

Mr Watt:

– By the definition of “ company” provided for, both corporate and unincorporate societies are embraced.

Mr FENTON:

– The co-operative butter factory of Terang carries on one of the largest businesses in any provincial centre, though it is owned by dairymen and run on co-operative lines.

Mr Higgs:

– Can the honorable member explain why ‘ people who have the good sense to co-operate should not pay something towards the cost of government ?

Mr Charlton:

– They do, but the honorable member, apparently, desires to tax them twice.

Mr FENTON:

– The bulk of our cooperators are paying, not only their own taxes, but other people’s taxes as well, because a very great many of them belong to the rank and file of the people. If a distinction is to be made, I should like to know what it is. Are co-operative companies, registered under the Provident Societies Act tobe covered by the exemption, whilst companies registered under the Companies Act are not? As a matter of fact, in actual operation there is very little difference between the two.

Mr BRUCE:
Treasurer · Flinders · NAT

. - It seems to me that, the amendment of the clause in the way suggested by the honorable member for Balaclava (Mr. Watt) would not really alter the discretion left to the Commissioner under the clause as it stands. I understand the honorable gentleman to propose that the clause should give to the Commissioner power to exempt from taxation rebates to its members paid by a company -which is, generally speaking, a co-operative one, in the sense that it trades with its own members, whilst there may be a small number of outsiders with whom at the same time it carries on a small trade. Under the wording of the clause, as it stands, the Commissioner would have discretion to exempt companies of that character.

Mr Watt:

– If instead of the word “usually” the word used were “chiefly,” I should agree with the honorable gentleman.

Mr BRUCE:

– I should say that “ usually “ and “ chiefly “ would, in that connexion, mean very much the same.

Mr Watt:

– I think that what was intended was to refer to companies that “ chiefly “ trade with their own members.

Mr BRUCE:

– I agree that there is some distinction: I am inclined to think that the use of the word “ chiefly “ would open the door wider than it is opened by the use of the word “ usually.”

Mr Watt:

– I think so, too.

Mr Charlton:

– The trouble is that the Commissioner puts a very limited interpretation on the word “ usually.”

Mr BRUCE:

– It seems to me that if we were to insert the words, “the Commissioner is satisfied that the company is carrying on its business on bond fide cooperative principles,” he would have to determine that the co-operative principle involved trading generally with their own members, who though they might have a small outside trade could still be regarded ascarrying on their business in accordance with genuine’ cooperative principles. I suggest to the Committee that that is completely covered by the clause as it stands, though I will certainly discuss the matter with the Commissioner.

Mr Charlton:

– The honorable gentleman need not bother to do so, because the Commissioner’s mind is made up.

Mr BRUCE:

– I understand that the interpretation of the section in the existing Act has been that the Commissioner has discretion where a business is carried on as a genuine co-operative enterprise in the. interests of the co-operators to exempt from, taxation rebates to members. I do not see that the position would be varied in any way by the adoption of the amendment suggested by the honorable member for Balaclava. If we open the door any wider than it is opened by the clause as it stands, we may be asked to exempt rebates paid by such companies as those to which the honorable member for Maribyrnong (Mr. Fenton) has referred.

Mr Maxwell:

– The trouble appears to ‘ be that the Commissioner, reads the section as if the word “ usually “ were not in it at all.

Mr BRUCE:

– Perhaps some honorable member can suggest a better word. I could not accept the word “ chiefly.”

Sir Robert Best:

– We might use the word “ mainly.”

Mr BRUCE:

-“ Mainly “ would have very much the same meaning as “ chiefly.” I am certain! that if the Commissioner has brought under his notice the interpretation honorable members expected him to put upon the use of the word “ usually “ he will see that where a society to all intents and purposes trades only for the benefit of its own co-operators, the fact that in . certain instances it does a small outside trade should not be regarded as destroying its true co-operative natureand so removing rebates to its members from exemption from taxation under this clause.

Mr CHARLTON:
Hunter

.- When this matter was under consideration in Committee, at the close of last session, quite a number of cases of assessments for tax were outstanding, and in some instances summonses had been issued for the amounts assessed. It is true, as the honorable member for Balaclava (Mr. Watt) has said, that when he was acting head of the Government, I had several interviews with him in regard to the. matter, and he endeavoured to meet the cases I submitted to him as far as possible. If honorable members will tax their memory, they will recall that, in dealing with this particular section of the existing Act, I wanted to make the provision retrospective, and the Committee favoured the amendment I submitted. The Minister who was in charge of the measure at the time promised me, after consulting with the Commissioner of Taxation at the back of the Chamber, along with Mr. Collins from’ the Treasury, that if I did not press my amendment no interference would take place in connexion with the cases to which I referred.

Mr Watt:

– Was that the late Treasurer?

Mr CHARLTON:

– No; the present Attorney-General (Mr. Groom) was in charge of the Bill at the time, and he will agree that what I am saying is correct. I accepted the promise in all good faith. It was the first time I was tricked in this House, but I was tricked. I have the greatest respect for the Commissioner of Taxation as an officer; but, notwithstanding the fact that he heard the debate that took place in this Chamber, he evidently had made up his mind that he was going to impose taxation on the members of these societies. That is clearly proved by the following letter, dated 12th December, 1921, which I received from him: -

Dear Mr. Charlton,

Re Co-operative Societies’ Rebates.

I am not sure whether any of the societies whose cases you advocated in Parliament during the discussion on the Bill to amend the Income Tax Assessment Act come within the express terms of the amendment granting exemption to members of societies in respect of rebates received from the society, based upon purchases from the society, -where the society or company is one which usually sells goods only to its own members.

I understand that practically every cooperative society sells goods to non-members in the ordinary course of business. That is to say, that ordinary retail co-operative societies sell goods to members and non-members alike. If I am correctly informed, then their members will not benefit by the amendment recently passed, because the societies do not usually sell goods only to their own members. Probably such societies will take steps to induce non-members to become members, or they will restrict their sales to members only.

The words “ usually sells goods only to its own members “ are designed to preserve the exemption to members of a society, which, for example, may sell a barrel of defective fish to a non-member to use as manure, because it could not possibly be sold to ordinary purchasers for food.

That was his interpretation, after listening to the debate which took place in this chamber. The Committee took a very much more liberal view of the provision than that. The Commissioner, in his letter, went on to say -

Apart from such rare transactions the society might be trading exclusively with its own members, and. therefore the members would retain the right to the exemptions specified in the amendment.

If they gave a non-member a wheelbarrow load of fish to be used as manure, it would be all right, and rebates to members would not be taxed. That shows the interpretation which the Commissioner of Taxation placed upon, the provision after hearing the whole of a debate, as a consequence of which I withdrew my amendment, because of the assurances I had received. The Commissioner further wrote -

I thought it desirable to let you have these observations so that you might be in a position to answer questions which might be put to you on the scope of the exemption and the meaning of the words discussed above.

I hope your vacation will be beneficial to you, and I trust your Christmas-time will be filled with all happiness and delight.

That letter is signed by Mr. Ewing, the Commissioner of Taxation; and I can assure honorable members that it was a very great surprise to me to receive such a letter, knowing thatpractically every member of the Committee agreed to exemption from taxation in the cases with which, I was dealing. Immediately I reached home I received this letter telling me that, so far as the Commissioner of Taxation was concerned, things would go on as before. As a result, I wrote to the Minister and pointed out the position. Summonses had been taken out against people whom the Committee decided should be exempt from taxation. If honorable members will look up in Hansard the debate on the last Income Tax Assessment Bill, they will find that what I have said is absolutely correct. On 10th April last Mr. Collins wrote to the Attorney-General (Mr. Groom) on this subject in the following terms : -

I have looked into the question of the taxation of rebates of co-operative societies regarding which Mr. Charlton wrote you on the 31st March last. The Income Tax Assessment Act was amended . byParliament towards the close of last session. Among other things the amendment provided for the exemption from income tax of - “ any rebates received by a member of the co-operative company based on his purchase from that company, where the company is one which usually sells goods only to its own members.”

In the debate on the Bill, Mr. Charlton sought to have the amendment dealing with those rebates . made retrospective. You -were in charge of the Bill at the time, and you indicated that the Commissioner of Taxation was not favorable to the suggestion, the objection to retrospective amendment of the Act being that it might necessitate refunds.

As a matter of fact, the honorable gentleman did not indicate anything of the kind. (He told ‘me that it would be all right, and if Hansard does not bear out my statement I will withdraw it. The letter continues: -

You added that if Mr. Charlton referred simply to claims outstanding, the Commissioner was prepared to meet his wishes. Mr. Charlton’s amendment was then withdrawn.

Mr Groom:

– The Commissioner promised that he would not collect those taxes.

Mr CHARLTON:

– That is so, but he broke the promise. Mr. Collins wrote further : -

Apparently what was meant by the Commissioner meeting Mr. Charlton’swishes was that the Commissioner would not insist on the payment of outstanding assessments for tax, but that he did not favour the refund of tax which had already been paid.

That was quite right. Refunds could not be expected.

Mr Groom:

– He said that he would not collect taxes outstanding.

Mr CHARLTON:

Mr. Collins’ letter proceeds -

That would seem to be the . promise to which Mr. Charlton referred in ‘his letter to you. The Commissioner of Taxation has already given effect thereto as follows: -

In cases in which tax has not been’ collected on rebates he will not now demand payment; and

in cases where tax has already been paid on such rebates he will not refund the tax.

The trouble is that in cases referred to in paragraph a many persons had received summonses to pay the tax. The letter continues : -

From 1st July last all rebates paid by cooperative companies or societies which usually sell goods only to their own members will be exempt in thehands of shareholder recipients under section 2 (b) of Income Tax Assessment Act, No. 3, of 1921. Co-operative societies which usually sell goods to other than their own members, however, are not benefited by the Act. Their rebates are taxable.

I do not wish to read the whole, but that is the purport of this long letter. It shows that theCommissioner, notwithstanding that he heard the debate and knew the views of honorable members, had made up his mind that everybody connected with these co-operative societies was taxable. That, however, was never meant by the House, which decided that, in the case of co-operative concerns, the members would not have to pay a second time. These co-operative societies are just aggregations of working men, who establish their own store and charge prices about on a par with prices charged elsewhere. They take care to have sufficient money to pay their way and to meet any unexpected emergency, such as a fire.

Mr Watt:

– Why not suggest to the Treasurer that rebates be exempt where 90 per cent, of the business is done with the society’s own members?

Mr CHARLTON:

– That is an arrangement that I should willingly accept.

Mr Bruce:

– I am prepared to have an amendment drafted providing that rebates shall be exempt where 90 per cent. of ‘ the trade is done with the society’s own members.

Amendment, by leave, withdrawn.

Mr PROWSE:
Swan

– I should like an explanation of the words “ but does not include interest, unless the taxpayer’s principal business consists of the lending of money, and does not include rents and dividends “ in the definition of “ income from personal exertion.” It is known that . the rent of farmhouses has to be brought into account. Those houses are in connexion with the trading equipment of the farmer; and I do. not think it is the intention of the Bill to include “rent” in the ordinary sense of the term. However, what I wish to know from the Treasurer is whether houses used on an estate or a farm to accommodate the servants employed, and included in the wages- of the servants, are to be brought into account?

Mr BRUCE:
Treasurer · Flinders · NAT

– As I understand, the servant receives as part of his wages the house provided for him, the rent of which would be equivalent to, say, 15s. per week. That certainly is not interest on his income, and will not be charged at the property rate. It is derived from personal exertion.

Mr Prowse:

– The person who. owns the house will have consideration to the extent of 15s. per week.

Mr BRUCE:

– The principal will not have to bring into account the 15s. paid in this way as wages, as income received from the rent of property.

Mr Watt:

– Itis wages in kind.

Mr BRUCE:

– Precisely; it is, as a matter of fact, a deduction. Following on the remarks of the Leader of the Opposition (Mr. Charlton), I beg to move -

That in paragraph (c) of the definition of “Income” the words “the company is one which usually sells goods only to its own members “, be left out with a view to insert in lieu thereof the words, “ the Commissioner is satisfied that ninetyper centum of its sales is made to its own members.”

Amendment agreed to.

Clause, as amended, agreed to.

Clauses 5 to 12 agreed to.

Clause 13-

  1. Subject to the provisions of this Act, income tax shall be levied and paid for each financial year upon the taxable ‘ income derived directly or indirectly by every taxpayer from sources within Australia during the period of twelve months ending on the thirtieth day of June preceding the financial year for which the tax is payable.
  2. In assessments of ‘tax for the financial year beginning on the first day of July, One thousand nine hundred and twenty-two and subsequent years, the rate to , be applied to the taxable income shall be calculated under the Act by which the rates of income tax are declared as if the taxable income were the average of the income derived by the taxpayer in the years (in this section called “ average years “) beginning with the first average year and ending with the year next preceding the financial year for which the tax is payable.
  3. The first average year shall be the fifth year before the financial year for which the tax is payable - except in the cases in which the subsequent provisions of this section provide for the first average year ‘being a later year.
  4. The first average year shall not be earlier than the year beginning on the first day of July, One thousand nine hundred and twenty.
  5. Where the taxable income of the taxpayer ascertained from the income of the year which would otherwise be the first average year was greater than his taxable income of the next succeeding year, the first average year shall be the first year, subsequent to the first-mentioned year, in which the taxable income of the taxpayer was less than his taxable income in the next subsequent year.
  6. Any year in which the taxpayer was not carrying on business and was not in receipt of a taxable income shall not be counted as an average year, but any year in which the deductions allowable in his assessment to a taxpayer engaged in business left no taxable income shall be capable of being a first average year, and, if an average year, shall be taken into account in ascertaining the rate and the excess of allowable deductions over assessable income shall be taken into account in calculating the average.
  7. Where a taxpayer establishes that, owing to his retirement from his occupation, or from, any other cause, his taxable income has been permanently reduced to an amount which is less than two-thirds of the average taxable income by reference to which hia rate of tax would be calculated, apart from the provisions of this sub-section, he shall be assessed as if he had never been a taxpayer in a previous year.
  8. Where there are not at least two average years for the purpose of calculating the rate under the foregoing provisions of’ this section, the rate of income tax to be applied in a year to the taxable income of a taxpayer shall be the rate applicable in that year, under the Act by which the rates of income tax are declared, to a taxable income of that amount.
Mr PROWSE:
Swan

– I move -

That sub-clauses 2 to8 inclusive be left out with a view to insert in lieu thereof the following new sub-clauses: - “ (2) In assessments of tax for the financial year beginning on the 1st day of July, 1922, and for each subsequent year -

the taxable income of the taxpayer (shall be deemed to be the total taxable income of the taxpayer in the years ( in this section called “ average years”) beginning with the first average year and ending with the year next preceding the financial year for which the tax is payable;

the rate to be applied to such total taxable income shall be calculated under the Act by which the rates of income tax are declared as if the taxable income were such’ total taxable income divided by the number of average years comprised in the period from the first average year to the financial year next preceding the financial year for which the tax is payable,” both inclusive;

from the amount of tax thus calculated there shallbe deducted the total amount of tax levied against the taxpayer in the total of the average years comprised in the period from the ‘financial year immediately succeeding the first average year to the financial year next preceding the financial year for which the tax is payable, both inclusive.

In assessments of tax for each of the financial rears beginning on the 1st day of July, 1022, the 1st day of July, 1023, the 1st day of July, 1924, and the 1st day of July, 1925, the first average year shall be not earlier than the financial year beginning on the first day of July, 1920.

Whenever the taxable income of a taxpayer has ‘been assessed for a period of five average years the rate of income tax to be applied in the next financial year shall be the rate applicable in that year, under the Act by which the rates of income tax are declared, to a taxable income of that amount, and that year shall be the first average year in assessments of his tax for each financial year subsequent to the last-mentioned financial year for a further period of five financial years.

Any year in which the taxpayer was not carrying on business and was not in receipt of a taxable income shall not be counted as an average year.

Any year in which the deductions allowed in his assessment to a taxpayer engaged in business left no taxable income or produced a loss or in which the taxpayer incurred a loss shall be an average year and shall be taken into account ‘in ascertaining the assessment of tax for any financial year.

Where the amount of tax calculated, under sub-section 2 (a) and (b) of this section is less than the amount of tax levied against the taxpayer an the total of the average years comprised in the period from the financial year immediately succeeding the first average year to the financial year next preceding the financial year for which the tax is payable, he shall he entitled to a refund of the difference between the amount of the lastmentioned tax and the amount of the tax so calculated.

Where there are not at least two average years for the purpose of calculating the rate under the foregoing provisions of this section the rate of income tax to be applied in a year to the taxable income of a taxpayer shall bc the rate applicable in that year, under the Act by which the rates of income tax are declared, to a taxable income of that amount.”

Tha amendment is to give effect to the simplest form of averaging, and to place every taxable citizen of the Commonwealth as nearly as possible on one footing. The honorable member for Kalgoorlie (Mr. Foley), for what reason I am unable to say, when speaking on the second reading, referred to the preparation of this amendment by some “ other people.” Well, I am glad to> be able to say that “ other people,” including actuaries, accountants, and others equally well informed, indorse the principle. However, if the honorable member for Kalgoorlie will refer to page 14148 of Hansard of last year, when a Taxation Amendment Bill was before the House, he will see that I referred to the inadequacy of the system then proposed, and that I presented some of the figures that I have, on the present occasion, laid in tabular form on the table of the House. I have been aware from the commencement, as many other honorable members must be, that the proposition submitted for cur consideration by the Royal Commission is. in itself totally inadequate to meet that which was asked .for in order to give fair play to the citizens of Australia under the graduated system of taxation which had been previously adopted.

Mr Foley:

– I also know that the table referred to was not placed before us by the honorable member twelve months ago. However, I do not wish to detract one iota from the efforts of the honorable member.

Mr PROWSE:

– I do not know what the honorable member is driving at. But I may say that the Pastoralists Associations, Mining Associations, and Taxpayers Associations have also indorsed the principle I advocate. The Royal Commission appointed did not agree with anything like unanimity on the system that has been recommended by the Treasurer (Mr. Bruce), for the Commissioners were as divided’ as seven men could be on the question, one of the dissentients being the chairman. If .honorable members would glance at pages 22 and 23 of the first report of the Royal Commission, they will i observe that two actual cases are given as examples, and each deals with fifteen years’ operations. Then on page 23, later, they will find that the examples are epitomized to show the results of the working of the various systems that had been placed before the Commission. In the epitomized schedule the two examples of fifteen years each are added together, giving thirty years’ experience on which to work. The annual average income is £6,714, and under the present Federal method that would involve a taxation of £55,166, which means 141.43, or 41.43 above the mean, taken at 100. That was the old system which in itself was absolute cruelty in a primary producing country like this, where we require development and immigration, and desire to prevent people from thronging into the cities. Those concerned in paying the tax did not know what was “hitting them”; if they had, there would have been an outcry that this House could not withstand. They felt they were being taxed beyond all reason, and did make some outcry, but not such as we should have heard had they thoroughly realized how inequitably they were being treated. This epitome of the examples next deals with the carrying forward of losses. The amount in that case would be £51,880, or 33 per cent, above the mean. No money-lender would be such a usurer. Then we have the average method recommended by four out of seven of the Commissioners. Under that system the taxpayer would pay £44,505, representing 114.10 or 14.10 above the mean. That is what is recommended to this Committee for adoption. Fancy being levied on by 14 per cent, over and above the levy on your fellow citizens who receive the same amount of income! We have still another method - the averaging system, with suspense credits. That shows 9.72 per cent, above the mean, and 9 per cent, is big interest. I should be sorry for the Commonwealth if it had to pay 9 per cent, for its money. What is the difference between 9 per cent, on taxation, and 9 per cent, for interest on loans ? The matter must be regarded in the same serious sense. A regular income of £6,714 per annum pays £39,005. That is the mean. No more, and no less, than that amount should be paid. Honorable members will see from the table the unreasonableness of the finding of the Royal Commission, which had an instruction to try to discover some means where- by the taxable capacity could be regulated over a period of years, chiefly in the interests of the primary producers. Members of the Country party never asked that it should apply to them alone. We only -wanted justice, and asked that the primary producers be placed on the same basis as other citizens. With 75 per cent of the wealth of the community coming from primary production, we ought to encourage people to produce more, and to do that we must place, them on the same basis as regards taxation as their city brethren. My amendment may have certain minor defects, but it is sound in principle, and would place all citizens on the same footing. It may be contended that a man’s losses may outweigh his income, but it should be recognised that my amendment quarantines the five-year period the same as income for one year is quarantined to-day. If there is no income, there is no tax ; and if there is any income it is taxed in the same way as if it were in the hands of the citizen who receives his income regularly. The Treasurer (Mr. Bruce) will, doubtless, raise the question of financial difficulty. It is manifest, of course, that if we drop from 141 pen cent, to 100 per cent, for allcitizens, the Treasury would suffer, but I maintain that the requirements of public finance should not be used as an argument in support of a palpable injustice. The Commissioners, on page 20 of their report, submitted another list, in which they showed the inaccuracy, or inconsistency, shall I say, of their own method. Theybrought in the present method with 148 per cent., while under the one to which I have referred they worked it out at 141 per cent.

Mr Watt:

– Different data make a different hypothesis.

Mr PROWSE:

– If they had used the method I suggest there would be no difference.

Mr Bruce:

– Do you say that, in the table on page 23, if the method there was applied it would give 100 per cent.?

Mr PROWSE:

– Yes.

Mr Watt:

– You would get a constant and steady income.

Mr PROWSE:

– Yes, my method provides for taking five years instead of one. In that five years, no matter what income was received, the tax payable on it would be precisely the same as if it were received in regular annual instalments.

Mr Watt:

– Suppose one man makes £1,000 a year for five years, . and another man £5,000 in one year, how do you get over that?

Mr PROWSE:

– The -tax on £5,000 is say, £511. In the next year he has an average of £2,500; in the third year the average is one-third of £5,000; in the fourth year it is one-fourth of £5,000; and in the fifth year one-fifth of £5,000.

Mr Watt:

– Does your method allow, in four out of those five years, a refund for the tax paid in the first year ?

Mr PROWSE:

– Yes, there would be a refund, as is shown distinctly on the printed sheets I have had circulated among honorablemembers, and in which I have taken five cases.

Mr Bruce:

– You would refund the amount overpaid, in the first year?

Mr PROWSE:

– Yes. It would involve a refund, but under this method there would be very few oases in which a refund would be involved. It would generally mean paying a smaller amount in the next year. Take the case of a man with a fluctuating income who receives £2,000 in the first year of a five years’ period. He pays £149 5s.11d. in tax upon that amount. In the next year he shows a profit of £1,000, and the amount of tax he was called upon to pay, under the old system, was £47 19s. 9d. Thus he would pay more in thetwo years than the individual with a taxable income of £1,500 per annum, which in two years would amount to the same total, namely, £3,000. The average income for the two years being £1,500, the tax on which is £91, the man with the steady, income pays £182, whereas the man with the fluctuating income pays £149 5s.11d. on the first year’s income of £2,000, and £47 19s. 9d. on the second year’s income of £1,000, or a total of £197 5s. 8d. If we were working on a flat rate all this would be unnecessary; but since we have a graduated rate, we must deal with income, and not with rates. The honorable member for Balaclava (Mr. Watt) has asked how losses are to be met. In’ the third year the man with the fluctuating income shows a loss of £1,000. That means that he has had a net income of £2,000 in three years, or £666 per annum. Under my method we would ascertain the tax on that £666, multiply it by three, and deduct what he has already paid, and then either the Treasurer refunds the difference, orthe taxpayer pays the balance. In the case that I am reviewing a refund of £105 16s. 5d. would be involved. The Treasurer would like to give equity without paying the price, but this price will have to be paid if we are to deal equitably with the people who are “ blazing the track “ to-day. We have at times given a dole to the farmers to enable them to purchase seed wheat, and allowed the squatters a bonus of ,1/2d. per lb. on their meat, to enable them to pull through; but those producers have paid far above that in excess taxation on account of the graduated scale that Parliament adopted without having given proper consideration to its effect. The great drawback to the British scheme is that an attempt has been made to achieve the impossible by a levellingup process.

Mr Bruce:

– They are adopting the averaging of incomes in Great Britain.

Mr PROWSE:

– If they are going on the lines I am now suggesting, well and good; but, so far as my reading goes, they are not. In the fourth year the taxpayer whose case I am quoting makes a profit of £3,000, so that over the four years there is a net taxable average income of £1,250 per annum.From the existing Ready Reckoner the amount due upon that taxable capacity can be ascertained, and, multiplying the result by four, we see that the taxpayer under my method would pay for the four years in taxation an amount of £195 2s. 7d. In the fifth year he gets no income whatever. Although he is still in business he works for nothing. Over the five years he has earned in the aggregate £5,000, or, at the rate of £1,000 per year, which, at the rate of £47 19s. 9d. per annum, would give a total tax of £239 18s. 9d. for the five years. In the sheet which I have distributed it will be seen that the man who has a regular taxable income of £1,000 per annum for five yearspays £239 18s. 9d..for the full period. On the other hand, the man with a fluctuating income over five years showing a net profit of £5,000, whose case I have just detailed, pays £3791s. 9d. on his profits, and is refunded £139 3s. for losses, leaving a net balance of £239 18s. 9d. The result is, therefore, the same as if he were in receipt of a regular average income for the five years. If honorable members are sincere they will place all citizens on an equitable basis such as this. I have also shown, on the sheet which I have distributed, what would have been paid under the old system by the man with the fluctuating income whose case I have just detailed. He would have paid £501. 4s. 2d. over the five years. No doubt, it would make the Treasurer squirm if he thought that” he was to be asked to take 50per cent, off the income tax payable by any citizen. However, we are asked to apply justice to all citizens alike, whether they are on the low grade of incomes or on the high grade, and honorable members opposite should at least agree to my proposal since it will benefit the man on a low earning who may happen to get in a few good months at a high wage. Under the amended system recommended by the Royal Commission’ on taxation, and introduced in an amending Bill passed last session, the citizen with the fluctuating income whose case I have detailed was liable to pay £374 9s. 3d.,as against the £239 18s. 9d. he would be called upon to pay under my proposal. Again, under the Treasurer’s present amendment, which is supposed to be a concession, although it is not, the same taxpayer will be called upon to pay £381 3s. 2d., which will really be £142 more than I consider he ought to be asked to pay. The only point the Treasurer can raise, in opposition to my proposal is that it would upset his estimates by depleting the Exchequer. If he should say anything about the difficulty of working it, I invite him to bring a blackboard into the chamber and let the Commissioner of Taxation work out under his method any set of figures named by honorablemembers. I guarantee that I would work out the same set of . figures in my own way just as speedily. If the Commissioner claims that my method would greatly increase the cost of collection, then I say he does not understand it. I have no desire to again read the report of the Royal Commission on the Commissioner for Taxation, where he made the bald statement that the system recommended by the Royal Commission would cost so much. Probably he would say the paIne about mine. The minority of the Commission clearly pointed out that in order to work out the rating system on the rate basis of averaging a new Ready Reckoner would be required. As a matter of fact, that which is now used by the Income Tax Office is rather comprehensive, although it is in the simplest form possible, but if a figure had to be computed for every rate the Ready Reckoner required would be a most expensive and voluminous affair, and could hardly be available for the current year’s assessments unless, in anticipation of this Bill passing, steps have already been taken towards its preparation.

Mr Bruce:

– Under this system you have only to ascertain the average income for the average period and find the rate on that income and apply it to the income of the previous years.

The TEMPORARY CHAIRMAN (Hon D Watkins:
NEWCASTLE, NEW SOUTH WALES

– The honorable member’s time has expired.

Mr PROWSE:

– If no other honorable member wishes to speak, and I have the right of reply, I will take my second period now. I am sure that the Treasurer does not imagine that he will find in the Ready Reckoner now in use any figure that will apply to the position as it will arise under the averaging system as outlined in the Bill. For instance, if the assessable income is £2,000 in the first year, and tax has been paid on that amount, and if only £1,000 is received in the second year, the latter would be assessed on the basis of the rate for £1,500 per annum. But there is no figure in the Ready Reckoner which will show that. A separate calculation would be necessary. In fact, under the method of averaging recommended, there would need to be a separate computation for each assessment, whereas under my system every calculation necessary could be ascertained from the existing Ready Reckoner; because I am rating on the average of the income, and the Ready Reckoner contains the rates for incomes, whereas there is nothing in it which shows how a £1,500 would apply to a £1,000 income. Many mistakes will be made until a new Ready Reckoner is drawn up to apply to the method adopted in the Bill. The method I recommend is to drop the first five years assessed, just as the year is now dropped, and start off each year with another period of five years. It would simplify the work in the Taxation Office. Each taxpayer’s pocket could contain a little printed form showing each year’s operations, and giving the whole of the details at a glance. Should a man die or leave the country his affairs will have been perfectly adjusted at any period. The citizen will be square, and the Department will be square at the end of each year. If a man sells out of business there will be no need for further adjustment.

Mr Pratten:

– At the present time, if a man pays his tax he is square.

Mr PROWSE:

– He will be so far as squareness goes under our present system, but I want to see that the settlement arrived at is on a just basis. I have the greatest respect for the Commissioner. In my dealings with him I have always found him to be most gentlemanly, but we are now dealing with national issues, and I am deeply concerned about the welfare of the people who are most affected by this system, and who are hit most by the variations in seasons. I want this averaging system to be so applied that it will deal even-handed justice to all citizens. I ask the Committee to give serious consideration to my amendment, and not lightly cast it aside. The honorable member for Kooyong (Sir Robert Best) said it had been before the Commission and had been rejected. I notice that statement appeared in the public press, but no notice was taken of my interjection to the effect that it had not been before the Commission, with the exception of one newspaper. A system, closely approximating to it, was discussed, but it was not given reasonable consideration. It is not correct to say that the Royal Commission considered this aspect of the averaging system and turned it down. When we find that the Commission has submitted to this Parliament a system that is totally inadequate to give justice, it behoves honorable members to give the question serious consideration. I want honorable members to test the figures which I have submitted to them, and to ascertain if it is not mathematically accurate. If the Treasurer finds that, having done justice to the citizens of the Commonwealth by levying equal taxation upon all, there is insufficient revenue to meet his requirements, the only honorable course for Parliament to take is to increase the rates levied upon its citizens. The Treasurer, I believe, anticipates collecting about £15,000,000 in taxation this year. I can comfort him by saying that as last year and this year were fairly even throughout the Commonwealth, there will be little fluctuation, of incomes, and, therefore, the averaging system will not seriously affect the nuances. But if, in consequence of poor seasons the income should drop from £15,000,000 to £12,000,000, the only course open to him would be to increase the rate by a percentage evenly upon all shoulders.

Mr Watt:

– The fixed salary man will be affected most.

Mr PROWSE:

– My amendment will bo in favour of the fixed salary man and not against him. The man in receipt oi a regular income comes out best of all. The honorable member for Balaclava wants to make out that the effect of my amendment will be to take taxation out of the pockets of the man with a regular income. That is not so. He has got off too lightly up to the present. When the graduated system was adopted it was presupposed that all taxpayers were on regular incomes; but it has been discovered that all are not in that position, hence the necessity for the averaging system to regulate taxation payments. I would like honorable members to understand that this is not an amendment of the principle of graduation. That will be retained, ‘but we should deal equitably with our citizens. If the Treasurer thinks that we shall be acting unjustly it will be for him to get the actuaries to advise him.- The amendment which I have submitted has, so far as I understand it, been drafted to cover the whole of clause 13, and its effect will be to collect incomes on the basis which I have endeavoured to explain to the Committee. If, in the clause, there are any minor technical difficulties, I hope that will not be regarded as a reason for objecting to the principle. I ask honorable members to test it well and how they like. If my contention as to the effect of the amendment can be disproved, I shall be prepared to vote with the Treasurer. If, on the other hand, my figures cannot be disproved, I suggest to honorable members - this is not a party question - that they should do the right thing by our citizens.

Mr Charlton:

– Would it not be preferable ‘to carry forward the losses from year to year?

Mr PROWSE:

– In the first report of the Royal Commission, a summary of examples shows that the carrying forward of losses over a period of thirteen years resulted in an excess of income tax of 35 per cent., as compared with taxation of steady income over the same period. The system I advocate will give equity to all our citizens. When the adjournment of the House was moved, about two years ago, to consider this question, the House unanimously decided that it was desirable that the averaging system should be equitable in regard to all taxpayers.

Mr Watt:

– Unanimously? When was that?

Mr PROWSE:

– Possibly, the honorable member for Balaclava was not present. There was no objection to the system. The Government appointed a Royal Commission. I disagreed with that proposal. I think the problem could have been solved better by two or three men thoroughly conversant with the question consulting together either in Melbourne or some other city. Climatic conditions have nothing whatever to do with the incidence of taxation. There was no need at all for seven men to journey all over Australia, because the incidence of taxation is the same in all the States. What was wanted was a scheme to reduce the principle to a system of equity. I have pleasure in submitting; the amendment, and -I hope it will be accepted.

Mr BRUCE:
Treasurer · Flinders · NAT

– The honorable member for Swan (Mr. Prowse) has obviously devoted a great deal of time and thought to his amendment. The position with regard to the averaging of incomes is that it was submitted to a Royal Commission which, after full investigation, brought in a report in which four of the Commissionersadvocated the averaging system which was embodied in the measure passed last December, and which is altered, in some respects, in the present Bill, and the other three Commissioners recommended the system known as the carrying forward of losses. The recommendation of the majority Commissioners was accepted by my predecessor and embodied in :the Act in

December. All I have done on the present occasion is to slightly alter that system., in some respects which I think improve it, and which I trust the Committee will accept. I have also applied it to all taxpayers, instead of limiting it to primary producers. Notwithstanding the fact that this method of averaging has been adopted, I was a little startled when I saw the honorable member’s memorandum setting out a system which he describes as “ true average.” One would naturally inquire very closely into a system so described, since any action- that might have been taken in the past could always be altered if some one had at last found a true averaging system. Unfortunately, all averaging systems break down in some respects: all of them can be shown to work a gross inequity if figures are taken to suit the particular point desired- to be demonstrated .

Mr Prowse:

– I ask the honorable member to give me figures to support that statement.

Mr BRUCE:

– I was very patient, and did not interrupt the honorable member while he was speaking. I hope he will extend to me the same courtesy. The only system of averaging to which there, could be no objection, is that which was more or less suggested on Friday last by the right honorable member for Balaclava (Mr. Watt). The right honorable member said that if we could average over a decade we might then, perhaps, secure something near absolute equity, and arrive at a position that could, probably, not be challenged. The true fact is that there is only one period over which we could get a perfect average, and that is the total taxable life of the taxpayer. Anything else would break down.

Mr Prowse:

– That is not so.

Mr BRUCE:

– I venture to say, notwithstanding the honorable member’s comment, that anything else would break down at some point or other. The other course is not to average at all, but to charge on a single year, so that everyman who had an income of £1,000 would pay the same tax. I venture to suggest to the honorable member for Swan that he has completely overlooked the point that his system does nothing more than give the same equity in respect of a five years’ period, that the old system, without averaging, gives in respect of’ one year.

Mr Prowse:

– Will the honorable gentleman excuse me?

Mr BRUCE:

– I think the honorable member had better allow me to proceed without interruption ; he will, be able later on to deal with all the blunders I shall make if left alone. The honorable member has done nothing more than to arrive at exactly the same equity that we had when we taxed on a single year. I agree with him that he has adjusted the position over five years; but we shall be faced, if we accept his scheme, with exactly the same trouble that we have had to face with regard to taxing on the basis- of a single year. If we adopted his scheme, individual taxpayers, enjoying the same amount of income over a period, would pay different, and substantially different, amounts. There is no question as to that.

Mr Watt:

– What if the periods, started differently?

Mr BRUCE:

– If. they ran for the same period, the result would be what I have said.

I do not want to give a great number of figures, nor do I desire to argue at great length the system proposed by the honorable member for Swan. I desire to) establish only one point, and that is that the honorable member’s system will not do what he has suggested. It will not give what he calls a true averaging system, under which every taxpayer enjoying the same income w.ould pay the same amount of tax. The Honorable member referred to examples given at pages 22 and 23 of the report of the Royal Commission, where the percentages that would be paid under different systems are shown. To make sure that I did ‘not misunderstand him, I asked him what amount he said would be paid under his system over a ‘ period which in the examples extends to thirteen years, and he said “ 100 per cent. ; just the same thing as with a steady income.”

Mr Prowse:

– On each five years ; that is what I said.

Mr BRUCE:

– I venture to suggest that there is no possible ground for saying that that position would come about. Let us take the case of a primary producer. His first five-years period, we will say, for example, starts with a. drought that extends over three years, while for the next two years he makes a small income and is just beginning to get on his feet again. That finalizes his five years period. That period is quarantined - cut off - and we will assume that his losses exceeded , his gains, and that he paid nothing at all in the way of taxation. At the end of that five years he starts a new period; the drought has passed. He has had two years in which to get. on his feet again, and he now enjoys five years of really prosperous trading. In respect of that second five years he would pay a very large income tax, and would get no relief in respect of the first five years.

Mr Charlton:

– That is an argument for the carrying forward of losses.

Mr Watt:

– But there might be no losses.

Mr BRUCE:

– For the moment, I want only to deal with the honorable member for ‘Swan’s scheme. I have taken an example of what would happen under it, but I do not suggest that the figures I have given represent what would happen every day. I wish only to show that the honorable member’s scheme will not give the true average. Having done so, I shall go back to the suggestions of the Royal Commission and state why we have adopted that which is embodied in the Bill. If the honorable member’s scheme would do what he suggests, it would be quite obvious that atlast a “ true averaging scheme,” as he describes it, had been found, and we should, obviously, be prepared to adopt it. But it does not do what he claims for it.

Mr Prowse:

– If you carried it forward long enough, it would; but for the sake of the convenience for which the Commissioner asks, I have suggested a five-years period, which is five times better than the one-year period.

Mr BRUCE:

– I quite agree that if we carried it far enough forward it would come right, but the period over which it would be necessary to carry it is the taxable life of the taxpayer. That is the only way.

In order that honorable members may weigh the position, I have had prepared some figures, in which I give a case on the lines of a primary producer who starts with a bad drought and then runs into a period ofprosperity. Copies of this table, which is as follows, are available for honorable members : -

In the first year, as honorable members will see, I suggest a loss of £3,000, sustained in the height of a bad drought. In the next year the taxpayer has a smaller loss, namely, £2,000, and in the third year a loss of £500. He then comes to a profit. In the fourth year he makes a profit of £1,000, and in the fifth year a profit of £1,500. Those are his profits in the first two years after the breaking of the drought. The result of his operations is that for the five-years period no profit is made and no income tax is charged. Those five years, however, are quarantined, and no reference can be made to them in the future. He then starts with the second five-years period. I assume that throughout the whole of this second period the taxpayer is successful, and is making a satisfactory income. The result of the whole ten years’ operations is that this man makes £15,500. The tax he would pay under the scheme proposed by the honorable member for Swan is £2,219 9s. 2d. Had he enjoyed a steady income of £1,550 each year, however, he would have paid only £971 ls. 8d., so that the result over this period of ten years is that the taxpayer, under the honorable member’s scheme, would pay some £1,300 more than would a man with a fixed income for each year.

I do not desire to labour the point, nor do I wish to deal with innumerable examples, but it can be shown that in some instances the man with a fluctuating income would pay very much more than a man with a steady income; that in others the payment in each case would be the Baine; while in still other cases the amount paid by the man with a fluctuating income would be less. The only point I want to demonstrate is that the honorable member’s proposal does not provide for a perfect averaging system.

Mr Prowse:

– ‘The honorable member takes me somewhat at a disadvantage with these figures, but if he admits that in five years-

Mr BRUCE:

– I suggest that the honorable member allow me to make my own statement. I allowed him to speak without interruption, and did not challenge any statement made by him. I wish to make it quite clear that I am putting forward these figures for no other purpose than to show the Committee that the honorable member’s scheme is not perfect. I am not quarrelling with it; I am not saying that it may not be a very excellent scheme. I merely urge that it is not such a perfect scheme that we should throw aside the recommendations we have had from those who have had an opportunity to fully consider the subject, and adopt it in preference to any other.

That is all I have to say regarding the proposal which the honorable member has put forward, save that I think I should draw the attention of the Committee to the fact that this scheme, or, if the honorable member objects to it being described as “ this scheme,” then a scheme so like it that it is impossible for any ordinary person to differentiate between the two, was considered by the Royal Commission. Honorable members are familiar with the scheme which the honorable member for Swan is proposing.. I shall read a description of a scheme which was considered by the Commission, and I think honorable members will agree with me that it- is difficult to say in what respect it differs from that which the honorable member has put forward. The Royal Commission, at page 14 of its report, states -

Modifications of the British scheme, dealing chiefly with minor phases, were submitted by several witnesses - a full description of which would swell this report unnecessarily - and were fully discussed and considered, and after careful examination rejected. They included a proposal that a system of five yearly averages be adopted for primary producers, each quinquennium to be treated as quarantined from all preceding and succeeding years, that tax ‘be tentatively collected on the income of each year as at present, hut the whole of the period to be reviewed at the end of the five years, the average income of the period ascertained, such average to be applied to each year as though the income of each year had been an unvarying sum. Amended assessments were then to be made in respect of each of the years of the period, and any balance shown when compared with the interim payments was to be paid to or refunded by the Department in final adjustment. -The sixth year was to commence a second quinquennium to be dealt with exactly like its predecessor and so on. This, being neither in accordance with sound principles nor reasonably practicable in administration, was rejected by us.

Under the scheme considered by the Commission, which is so like that put forward by the honorable member for Swan thatone cannot tell the difference-

Mr Watt:

– There is one striking difference, inasmuch as that dealt with by the Commission provided that the tax should be tentatively collected on the income of each year as at present-

Mr BRUCE:

– And balanced up at the end of five years.

Mr Watt:

– But the honorable member for Swan proposes to balance every year.

Mr BRUCE:

– He suggests that we should adjust in each year, as we go on; but the main principle of the quarantining of the five-years period, which is the principal feature of his scheme, is embodied in that considered by the Commission. That scheme, having been considered, was found by the Commission, which had. every opportunity of examining witnesses and investigating the scheme in its fullest details, to be unsatisfactory. I venture to .suggest to this Committee that it would, be very unwise to reject the advicegiven by the Commission.

Mr Prowse:

– Only four members of the Commission rejected the scheme.

Mr BRUCE:

– The honorable gentleman, is speaking of a division of four against three of the members of the Commission. I would remind him that there were seven members of . the Commission, and not one of them recommended the scheme that he is putting forward. The majority favoured an averaging system, and the minority favoured the- carrying forward of losses, but neither the majority, nor the minority accepted the- honorable member’s scheme. Although the statement I have read was embodied in the majority report, I. do. not think there are any grounds for. supposing that the minority did not share the same view.

The averaging system, as against the carrying forward of losses, has been suggested by the Leader of the Opposition(Mr. Charlton), and there 1st no doubt that there is a . great body of opinion,in this country which is- very evenly divided between the two systems. I do not think that one can dogmatize as to which is right. Any members of this Committee who are prepared, definitely and. absolutely, to say that one of the two is right, and to stake their reputations on their, views, are very courageous.

Mr Watt:

– Either- that, or they have not much reputation.

Mr BRUCE:

– Perhaps there is something in that. The scheme which is based upon the averaging of the rate - or to put it more simply, is based upon determining the rates applicable to the average income, and then applying that to the income of the preceding year - has been recommended by the majority of the Commission. It was recommended by my predecessor (Sir Joseph Cook), who, no doubt, spent many anxious days and laborious nights in deciding which was the better of the two systems. It was also adopted by the House, and I am not prepared to depart from it until it can be demonstrated to me, beyond question, that there is a better scheme. The honorable member for Swan (Mr. Prowse) has not demonstrated that to me in regard to his scheme, and consequently I cannot advise the Committee, to accept his amendment, nor can the Government see its way to accept it.

Mr WATT:
Balaclava

.- I think the Committee is indebted to the honorable member for Swan (Mr. Prowse), although it may not agree with his calculations or the methods by which he has arrived at his data, but. it is very interesting, and certainly encouraging, to seea member of the Committee- work out a scheme of this kind, whether by his own unaided efforts or with the assistance of an industrious friend, as has been suggested somewhat sardonically by the honorable member for Kalgoorlie (Mr. Foley).

Mr Foley:

– Not sardonically. I did not wish to. oast any reflection on the. honorable member for Swan. I said it. sincerely.

Mr WATT:

– The suggestion is all the worse- if it is sincere. I do not want to enlarge upon this difference between east and. west, which has already been referred to- by the honorable member for Swan, and, therefore, I withdraw the imputation on the honorable member for Kalgoorlie. The proposal, is. interesting, and it- shows that, although Parliament is fast hurrying to the tomb, there is at least one man,, who comes from the Far West, where wise men used not to come from in the ancient days, who is content to labour on while it is yet day, knowing that “ the world’s dark night is hastening on.” I read the literature circulated by the honorable member for Swan. I listened as patiently as I could at a time like this to all “his remarks, and I had the temerity or audacity to put in an interjection or two, which, I hope, threw an effulgent light on some of his sentences. I listened, also, with equal care to the Treasurer. I am- not in love with the proposals contained in the Bill, because I do not believe in the averaging system, but I am still less in love with the proposals- of the honorable member for Swan. I say that to him respectfully. I do not believe the proposals, which he- submits to the Committee will give any more equity in the long run than either the existing Act or the Bill which seeks to amend it. I will not labour this question, of averaging; because, on the second: reading of the Bill, I took leave to say briefly,, but somewhat emphatically, that I thought we were making a mistake, and I still think that the Treasurer himself, who is not only beautiful but young, will live long enough to find that this system will have to be amended, when defects of which we are not now aware will become visible.

Mr Prowse:

– The Treasurer has already admitted defects.

Mr WATT:

– He is merely doing what he is . entitled to do - showing up the mistakes of his predecessor. I think the Treasurer has put his finger, in his very carefully-reasoned reply, right on the weak spot of the system advocated by the honorable member for Swan. The honorable member seeks to put his periods of life into pockets - his quarantining idea would be another way of expressing it. There is, to him, some virtue in starting with the year 1910, and finishing with . the year1915; and then beginning again with the year 1916, and finishing with ‘the year1920, thus making life one long series of five-year periods. That is the point which seems to give a grotesque interpretation and effect to his proposition, and . enables the Treasurer to show that the thing which is claimed to be perfect in its . reasoning and its effects is, after all, contributing the same kind of inequity, -if we judge it over a longer period and on the same hypothesis, as the present system. I venture to think that if we take any of the methods of . averaging or of setting off the figures of one year against another, or of . one series of years against another series, and submit them to the same test, we shall get the same kind of objection lodged by ingenious analysts, who will show that each particular proposal is faulty in its own way.

One other feature of the honorable member for Swan’s scheme is obvious. He showed that if we give men with fluctuating incomes more equity or more just terms, we shall have to replenish the revenue by lifting the rates, and what we shall -really be doing will be to take the men with fixed or more ‘regular incomes, and compel them, by increasing their -rate, to pay something that, at present, is paid by men with fluctuating incomes. Let us consider the case of men with regular businesses, or with regular incomes from property, salary, orpartnerships. As againstthem there are some people who indulge, perhaps, in speculation - let us call them dealers in live stock, dealers in stocks and shares, dabblers in precarious waters, and plungers. In order that the latter may have a better surface to their life, and have less injustice put upon them, we are asked to lift the rates against the . other people, who, . after all, are those who carry -society . on their . backs. The regular earner would not . be . pleased with the honorable gentleman or . his proposal.’ That, is what it boils down to. The Treasurer, who sought to make one point, has not been at pains to . demonstrate this, but if one were to put the microscope on that particular phase of thehonorable member’s proposition, I think it would be shown to inflict a gross injustice on -the men who are bearing the weight of most of the burdens of human society. The Treasurer did not make a point of what the doss would be to the revenue if the proposal were adopted. I assume that it would mean a vast . increase in taxation in some form or other.

Mr Prowse:

– It would distribute the burdens more evenly upon the shoulders of the taxpayers.

Mr WATT:

– We have heard that statement often in this House. It is like the parrot cry on the links, “ Keep your eye on the ball.” It means nothing after you have heard it several times. It appears to me, from examples one and two, quoted on page 23 of theRoyal Commission’s report, and the deductions and compilations embodied “in paragraph 89, on the same page, that there would conceivably have to be an increase in rates of 331/3 per cent. If our revenue were £15,000,000 from income tax, and we made the remissions on a scale suggested by the honorable member, and did not lift the rates, the loss would be one-third of the present revenue, namely, £5,000,000. Our income tax yield would be reduced ‘from £15,000,000 to £10,000,000. Then the Treasurer, -or some one armed with his responsibilities, would have to : find some other £5,000;000. I -take leave to say that unless it could be shown . that there were some striking, salutary, indubitable benefits to all concerned,no Government would be justified at the present time in forfeiting a revenue of £5,000,000. The State must finance itself -in some manner or other, and to give away £5,000,000 at the present time would be a suicidal actoffolly.

Then there is another phase to which I recommend the Treasurer’s attention. Doubtless it has already been brought to his notice, or has occurred to his mind. There is the question, not only of the sufficiency of revenue from this source, but of the certainty of it. Under the present system, with minor exceptions arising out of adjustments involving refunds, when once the money gets into the Taxation Commissioner’s hands, and through him to the Consolidated Revenue, it does not go out. When the revenue is in on 30th June, the Treasurer knows how much it amounts to. Under the proposed scheme of the honorable member for Swan (Mr. Prowse), it is conceivable that money which has flowed into the Treasury to the extent of some millions of pounds might in the following year, and in a year when the Treasurer could least spare it, because it would be the result of devastation or drought, have to flow back again.

Mr Prowse:

– The right honorable member has not rightly grasped my scheme in that connexion.

Mr WATT:

– Is that my fault or the consequence of a combination of faults in which the honorable member is involved ?

Mr Prowse:

– I have shown the right honorable member that the payments would be less.

Mr WATT:

– I gave the honorable member one illustration which I admit was striking,and , was, perhaps, new. One man may be making £5,000 in the first year, and pay taxation on that Amount, but would incur losses in subsequent years. If the honorable member’s system is what he pretends it to be, the Treasurer of the day would have to hand back during those lean years some of the taxation paid on that income of £5,000 per year. In the case of a squatter in any part of Australia making £20,000 or £30,000 per year during good seasons, who later has to contend with drought years far a period of four or five years, the Treasurer of the day would have to finance him by refunding his taxation. The point I wish tomake - whether it is just or unjust I am not called upon at this moment to say - is that it would involve money being drawn out of the Treasury, probably at a very inop portune time, and that is a principle which no Parliament has ever sanctioned, because there must not only be a sufficiency but a fixity of revenue without any returncurrent of any kind.

Mr Bruce:

– If we had a serious drought we would be faced with the situation created by the war-time profits tax in Great Britain after the war.

Mr WATT:

– Yes. The difficulty in the proposal of the honorable member for Swan (Mr. Prowse) is that once such a principle was embodied in a Statute no Treasurer would be able to retain what he held. When we introduce an element of uncertainty and difficulty in connexion with the finances of this country, which are difficult enough in all conscience to manage at present, the position becomes chaotic, and I am glad the Treasurer in very temperate terms clearly stated that the Government are not prepared to accept this new method in connexion with the income tax law.

Mr BELL:
Darwin

.- The proposal of averaging incomes over a period of years was first suggested with the idea of overcoming the injustices which at present prevail in consequence of taxes bearing more heavily upon one section of the community than upon another. When the -system was first mentioned to me it appeared to be excellent, and after having given it a good deal of consideration I felt inclined to support it. Although it has been said this evening that there was no justification for referring the question to a Royal Commission it must be admitted that, in consequence of this and other proposals being submitted to that body, a good deal of useful information has been placed at our disposal. I studied the report of the Commission with great care, and after discussing the recommendations in relation to the averaging of incomes with many of my friends, I had to confess that the suggestion that it would bring about a greater degree of justice is unwarranted. It appears to me that the system of averaging incomes which has been operating in Great Britain for a considerable time has been recognised as inequitable. The Royal Commission recommended a system which in a sense is a compromise, because after considering the scheme in operation in Great Britain and others mentioned in the report, they recommended that the incomes over a period of five, years should be averaged for the purpose - of fixing the rate of tax to be paid upon incomes in any particular year. It would appear that the Treasurer (Mr. Bruce) has recognised that the recommendation of the Commission would bring about a degree of injustice to those taxpayers whose incomes are gradually growing less, and it is now suggested that the averaging system shall not be taken into consideration when the income of a taxpayer is declining. But when it becomes fixed, or commences to rise, the averaging system will operate, and that is only involving matters even to a greater degree, and making the proposal more objectionable, because when one’s income has been on the down grade for, say, four years, and increases slightly in the next year, this system will, operate, although the income may decline again in the following year. The fact that the Treasurer has admitted that it was necessary to introduce something of this nature to overcome what was obviously an injustice, proves that he recognises that the scheme adopted last year is not a good one. The Commission recognised that the averaging of incomes is inequitable, because they recommended averaging for fixing the rates; but the Treasurer now admits that the whole scheme is impracticable, and submits a compromise. I have studied the amendment of the honorable member for Swan (Mr. Prowse) as closely as I could during the limited time at my disposal, and I also followed his speech very closely. I have not, however, had the same time to consider his suggestions as I have those embodied in the report of the Commission; but 1- believe that the proposal of the honorable member for Swan is preferable to that embodied in the Bill, because it takes into account the losses sustained by any taxpayer during any one year. The Treasurer says that it is no more equitable than the present system, which levies taxation over a period of one year; but I cannot agree with that, because if we average the incomes over a period of five years the rate arrived at must be more nearly correct than if we adopt the income for one year, provided we take into account the losses sustained by a taxpayer in any one of the five years. My objection to the amendment is that it limits the period to five years. I do not like the scheme embodied in the Bill, and, in my opinion, the only way to overcome the objections put forward in connexion with the averaging of incomes is by carrying forward the losses as recommended in the minority report of the Commission, which reads -

That the Income Tax Assessment Act be amended so as to incorporate in the determination ot taxable income the system of carrying forward of losses up to a period of five years unless earlier extinguished by subsequent profits.

No specific period of years is involved in that recommendation. The Treasurer and the right honorable member for Balaclava (Mr. Watt) have said that the only averaging system that would be equitable would be one based on the income derived by a taxpayer during the whole of his life-time. The system of carrying forward is applicable to the whole of the taxation period of any taxpayer, and it is so simple that any one can understand it. It would also be easy to administer, and any taxes contributed would not have to be returned to the taxpayer. The only objection I have heard of is that the Treasurer of the day would not be able to estimate the revenue from income tax for any year. It is recommended by a minority of the Taxation Commission. That recommendation appears on page 58 of the first report of the Commission, and is couched in language so emphatic and clear that there should be no doubt in the minds of honorable members as to the fairness of the system compared with that of. the systems of averaging that have been suggested.

Mr Hector Lamond:

– It would prolong a “drought for years.

Mr BELL:

– I do not see how that would affect the Treasurer, because, if a man had not any income, it would not matter if he carried on his losses for ever. It is not unusual to advance extreme cases to prove an argument. I differ from the right honorable member for Balaclava when he says that if we adopt any averaging system, particularly that of the honorable member for Swan, which is, I think, the best averaging system yet suggested, it will place an unfair burden on the man with a fixed income. If the man with a fluctuating income is taxed unfairly by being called on to pay more taxation than he would have to pay. if assessed on his capacity over a long period of years, and the remedying of that causes the man, with a fixed income to pay more, taxation, that is no objection, because the latter gets an undue advantage from the present system. I do not agree with the Tight honorable member for Balaclava when he objects to the scheme, of the honorable member for Swan or to that of the minority of the Royal Commissioners, which I consider the simplest, most perfect, and best yet suggested for overcoming the injustice of taxing, unduly those who are unfortunate enough to make losses in some years which may cripple them financially for many years afterwards, and yet are not taken into account by the Taxation Commissioner. I could cite many such cases, but I have one in mind which was mentioned to me soon after I was returned to this Parliament. A syndicate of five members, who each put in £100, for four years worked a mining venture without making any profit, and having then exhausted its capital, borrowed £400 to carry on. In its fifth year, it raised a little metal, and made a profit of £400, and this profit was taxed by the Commissioner at the rate- of1s. 4d. in the £1. Such taxation, is unjust, and very discouraging,to those who need encouragement to put capital into ventures of this kind. The iniquity of the present system has been admitted, and several schemes have been- suggested to get rid of it. The present proposal is not a good one; -because it will not effect the end in view. Clearly, a man with a declining income will -pay more than is fair and just, and, to some extent,. a man with a climbing income will be relieved of taxation which he ought to pay. I am sorry that I cannot give fuller support to the Bill. I join with those who have said that the Treasurer has gone to great pains in framing it and in explaining its provisions. His explanations have been so clear that every honorable member must now understand the. Bill almost as well as he does. I know that the Bill merely extends to all taxpayers the averaging system which was introduced for the benefit merely of. those engaged in primary industries. Probably, the amendment of the honorable member for Swan will not be carried, though I am inclined to vote for- it as an improvement on the proposal of the Government. But it has been, suggested by other honorable members,- particularly the Leader of: the Opposition (Mr.. Charlton), that an arrangement for the carrying forward of losses would be preferable; and that has been my opinion for many weeks past, after having given consideration to every scheme that has been suggested to me. If any honorable member will move to embody that scheme in the law, I shall have pleasure in supporting the amendment, because I consider that it meets all the objections that can ibe raised to the otherschemes, and will give a measure of justice to taxpayers who are unfortunate enough tomake losses in certain years. Should it be adopted, there will be no great need for the averaging system, which will be applicable merely to those whose incomes fluctuate, but who never incur an actual deficit.

Mr PRATTEN:
Parramatta

– I have just a word or two to say on this much-vexed question before the issue is decided. I have given some little attention to the question of averaging incomes. I have before me eight or ten different methods of. calculation under different schemes, and none of them fit in with my idea- of mathematical accuracy. So far as the proposal of the honorable member for Swan (Mr. Prowse) is concerned, while, in- common with others, I admire his industry, and also his tenacity and persistency, the Treasurer himself has issued a paper showing that under that scheme a larger amount of taxation would be paid on varying incomes than under the scheme in the Bill.

Mr Bruce:

– I did not issue it for that purpose.

Mr PRATTEN:

– I realize that it was not issued- for that purpose ; but the fact remains that under the scheme proposed by the honorable member for- Swan a considerably higher aggregate of taxation would be paid over a ten-year period than it is shown would be paid under the scheme proposed by the Treasurer. I also have had one or two circulars from Western Australia showing that different figures producedifferent results.

Mr.Fenton. - They always do.

Mr PRATTEN:

– That is so; but I remind the honorable member that different methods of handling figures also produce different results. Slimming up the whole thing, it is possible that honorable members who advocate averaging in connexion with income-tax payments may find that they . have bought . a “gold brick” before it is all over. So far as I can see, this legislation is to a very large extent experimental. We may find, after two or three years’ trial of this scheme that it will be necessary to adopt another, either . because the incidence of what we are asked to pass to-night will work out unfairly, or because the revenue will be considerably depreciated. On that point it seems to me that the Treasurer’s proposals will give alleviation only in the case of rising incomes ; ‘whilst the -man with a gradually falling income, so far as I can follow the probable incidence o£ the scheme, may have to pay a little more than he would have to pay under the existing system. The arguments to-night and the figures that have been adduced, in connexion with the averaging system, remind me that an American writer once said of figures, “Figures cannot lie, only because they cannot talk.” There are many different examples in connexion with all the schemes before us that give very different results. I shall support the Treasurer’s proposal, not because I am enamoured of it, but because it seems to me to be a fair attempt to carry out what is generally recognised as the expressed will of the House, that some kind of averaging system shall be brought into operation. I do not consider it at all a permanent solution of the difficulty. I think that for a year or two it may, perhaps, save us from bigger losses of revenue than other systems would bring about. I am not prepared to admit that any system proposed represents a final solution of the problem. I believe that we shall have as many complaints at the end of a trial for a year or two of this system as we get now, but the House has affirmed that an averaging system shall be brought into operation, and the Treasurer is making an attempt to give effect to that expression of the will of the House, and at the same time to prevent any great reduction in the, revenue from taxation.

Mr Fenton:

– Does- the honorable member believe in the averaging system?

Mr PRATTEN:

– I believe in the straight-out -simple proposition of deduct ing losses from profits. I believe in the recommendation made by three of the seven -members of the Taxation Royal Commission, and not in the recommendation made by four of its members. After all, it is a debatable matter, and the balance was only one out of seven in favour of the proposal submitted in the Bill. I would prefer that our legislation should be simplified in the direction proposed by the minority of the Taxation Commission, so that the taxpayer might understand his account when he is called upon to pay it.

Mr Charlton:

– That is what we want.

Mr PRATTEN:

– I am quite sure that the majority of our taxpayers do not understand what they are paying, and cannot check the assessments made. I have said that I intend to vote for the Treasurer’s proposal, but I do not wish it to be understood that I regard it as a final settlement of the problem.

Mr ATKINSON:
Wilmot

.- In common with other members of the Committee, I have thought that there should be some form of averaging incomes, especially for primary producers. The matter was considered very fully last session, and a clause to provide for that was included in the Bill then under consideration. The Treasurer proposes now to extend the averaging system to all incomes, and I have no objection to that. On the question whether the system of carrying forwardoflosses as recommended by the minority report of the Taxation Commission is better than the averaging system, I am not prepared to offer an opinion off-hand. The more one studies the question the more difficult it is to say which is the better system to adopt. However, we are not asked tonight to come to a decision on the system of carrying forward losses, but to decide which is the better averaging system to adopt. The object of the amendment before the Committee is to modify the provisions of the Bill. I think that the Treasurer has proposed an improvement upon the Act as it stands. At the same time, I believe that the honorable member for : Swan has submitted a system which would be more equitable to the taxpayer, and particularly to the primary producer, than the system embodied in the Bill before us. On his own figures the Treasurer admits that if in a period of five years a severe drought is experienced and the taxpayer has losses amounting to £5,500, and his income at the latter part of the period amounts to £2,500, he will pay nothing. But the Treasurer says that in the following years the taxpayer may have an exceptional good time, and reap a total harvest of £21,000, and, under the scheme cT the honorable member for Swan (Mr. Prowse)’, would have to pay a heavier amount in taxation than the man who had had a steady income of £1,550 right through the ten years. That is so, but at the same time the taxpayer is only paying out money that he has in hand, and is in a position to pay. One of the troubles that brought about the averaging system was that the primary producer was called upon to pay heavy taxation when he had no money.

Mr West:

– Other persons are in the same position.

Mr ATKINSON:

– I admit that; I suppose that most business people use their overdrafts to pay income taxation. There is .a difficulty presented in sub-clause 7 of the honorable member’s amendment, where he provides for a refund. It might be quite just and right that an account be kept between the Treasury and the taxpayer, but I cannot conceive that a Treasurer would undertake to refund money which had been actually received in previous years. I should be inclined to vote for the honorable member’s amend: ment if, instead of asking for an absolute refund, he simply provided for a book entry crediting the taxpayer with a certain amount. Otherwise, in bad seasons, when the Treasury itself was in need of money, it might be called upon to pay out large sums in refunds. The amendment does afford a measure of equity and justice, although it may not be theoretically a true average - an equity and justice that may not be secured under the Bill as presented.

Mr GREENE:
RICHMOND, NEW SOUTH WALES · LP; NAT from 1917

– It would result in the taxpayer paying more.

Mr ATKINSON:

– With that I do not agree. The amendment of the honorable member for Swan covers a period of five years, and when that period was over, we would start de novo; never mind whether the taxpayer had or had not had losses in one period, those losses could not be carried over into the second period, the periods being like so many, water-tight compartments. In any of those periods of five years, whether a man received a net income of £10,000 in two years or an equal amount of £2,000 each year as a steady income, the same tax would have to be paid; and that is the great merit of the honorable member’s scheme. I am afraid, however, that if sub-clause 7 remains as presented to us by the honorable member, I shall be disinclined to commit the Treasury to refunds that may be called for at a time when the country is least able to bear the burden. If the honorable member for Swan could overcome that difficulty I should be prepared to support his amendment.

Mr JOWETT:
Grampians

.- I must apologize for not having produced one or two, or a dozen or two, highly interesting documents, full of calculations, in order to show that every other system but the one I myself favour would result in the taxpayer paying ever so much more. I must say that of the multitudinous documents I have seen, the most interesting, and, I hope I may say without offence the most amusing, is the one just handed to us by our honorable friend (Mr. Bruce). I do not know whether the honorable gentleman himself has examined the figures showing the profits and losses each year during the ten years. If he has, can he tell us whether these figures purport to show the actual income of any person living on this earth? I draw the attention of the Committee to the extraordinary nature of these figures. They show in the first year a loss of £3,000, the next year a loss of £2,000, the next a loss of £500, and then the next year the losses of this happy taxpayer begin to be converted into profits. But the extraordinary thing is that the figures show a steady progression every year; there is practically no variation; there are no ups or downs.

Mr Bruce:

– You can quote them anyway; it will not make the slightest difference.

Mr JOWETT:

– And no sensible person would take the slightest notice of such figures as have been shown to the Committee. These most amazing, incredible, most impossible figures ever produced by any living man show a steady progression of losses in each year, and a final profit in the tenth year of £5,000.

I would have thought that there is only one man, or a follower of that man, who would dream of producing such figures, and of putting them before a deliberate or representative body. Honorable members have heard of M. Coue, whose great gospel of life was that everybody must say at the moment of waking and rising, “ Every day and every hour, I am growing better and better.’’ Nobody but ‘a disciple of M. Coue could have been expected to place on paper such figures as those now before us. I have already expressed myself fully on the averaging question, and do not intend to delay the Committee. The system of averaging incomes has been attacked by several speakers to-night. The Treasurer (Mr. Bruce) made a point of the fact that the honorable member for Swan (Mr. Prowse) spoke of his proposal as one of taxing the “ true average “ of incomes. But I am sure that the honorable member for Swan used the word “ true “ in a relative sense, and meant that his method was true as compared with others. The minority report of the Royal Commission was very strongly in favour of the system of taxing average incomes. It did not claim that that was the perfect system, but it did establish that that system more nearly approached to justice than others. In a supplementary statement the majority Commissioners (Messrs. Jolly, Farleigh, Missingham, and Thomson) stated -

Regarding any system of graduated income tax, three postulates meet general acceptance-

Any system of averaging that covers in one span the whole taxing - that is, the whole income-earning- -life of a taxpayer will, ceteris paribus, disclose his true taxable capacity, and will by reference to the rates and regulations ruling for the time being produce equality of tax payment as between one whose income fluctuates and one whose income is steady.

Any shortening of the . period of time from the whole taxing life will involve a departure from true taxable capacity and produce divergence in tax payment as between a fluctuating income and a steady income, making the payment in some cases greater, in others less. The shorter the period the greater will the divergence be.

Assuming one-year periods to be the shortest ever so used, theperiod of time (one year) adopted under the present Federal method involves the greatest departure from true taxable capacity and produces the greatest divergence possible in tax payment as between a fluctuating income and a steady income.

Finally the majority Commissioners said -

In Australia there has operated for years a system of taxing on graduated scales the income of each year without regard to adjoining years, and from it hassprung a crop of ‘injustice which, supinely tolerated when rates were comparatively low, has now stirred the sufferers into protest. The intolerable burden of a tax, which in a specially profitable year taxes every pound at a high rate without any allowance whatever for the greatly reduced incomes or positive losses of the adjacent years, results in harsh inequalities when compared with the milder treatment meted out to steady unfluctuating incomes of equal volume.

I quote that to show that in the opinion of the majority of the Commissioners the taxing of average incomes was desirable. I, therefore, support the amendment of the honorable member for Swan. I quite admit that the proposals in the Bill represent a tremendous amelioration of the old system, and, although we gladly accept it as being in some measure in the direction of justice, it is not what the primary producers of Australia desire, and it is not what we consider fully fair to all classes.

Mr Prowse:

– May I reply to the-

The CHAIRMAN (Hon J M Chanter:
RIVERINA, NEW SOUTH WALES

– The honorable member for Swan has exhausted his right to speak further. I have called the attention of the Committee before to a position similar to this. The Standing Orders provide that no honorable member shall speak for more than thirty minutes at one time, or more than, twice. The honorable member, having entered into his second halfhour, has exhausted his right.

Mr Prowse:

– May I ask the leave of the Committee?

The CHAIRMAN:

– No.

Mr Prowse:

– May I make a personal explanation?

Mr Prowse:

– This is a very vital matter, and I was under the impression that the Committee kindly gave me an extension of time. I specially inquired of the honorable member for Balaclava (Mr. Watt) on this point, and he told me thatI still had an opportunity to apeak, as the Committee had extended my time. Otherwise, I would have sat down sooner, because I wished to have an opportunity -to reply to the Treasurer.

The CHAIRMAN:

– The honorable member is going beyond a personal explanation.

Mr Prowse:

– I have been misrepresented, but if the Committee, desires to “ gag “ me–

The CHAIRMAN:

– The honorable member does not mean that. The standing order is perfectly clear. If an honorable member wishes to enter into his second period of thirty minutes, by obtaining the leave of the Committee he may do so. The object of the rule is to allow every honorable member an opportunity to speak. -The leave of -the Committee has tobe obtained to enable an honorable member to continue into his second half-an-hour period. I have given this ruling before, and it must be abided by.

Mr Prowse:

– I did not ask for an extension . of time.

The CHAIRMAN:

– It is immaterial whether the honorable member asked for it, or whether others asked for it on hisbehalf. If leave could be obtained for an honorable member to go on- speaking, the rule would be broken down and preference would be given to some honorable members over others.

Question - That the sub-clauses proposed to be omitted stand part of the clause (Mr. ‘Prowse’s amendment) - put. The Committee divided.

AYES: 0

NOES: 0

Majority . . . . 13

AYES

NOES

Question so resolved in the affirmative.

Amendment negatived.

Clause agreed to.

Progress reported.

House adjourned at 11.14 p.m.

Cite as: Australia, House of Representatives, Debates, 9 October 1922, viewed 22 October 2017, <http://historichansard.net/hofreps/1922/19221009_reps_8_101/>.