First published in The Age on May 18, 1942
UNIFORM TAX AND EQUITY
In scope and effect the series of Bills introduced last week to carry out the Federal Government’s plan of uniform taxation proposes far-reaching, even revolutionary, changes in our financial and taxing arrangements.
The broad principle that in wartime the national Government must have first call on taxable incomes and capacity is not open to challenge. But when this has been fully conceded, the scheme as presented has important features which afford ground for weighty objection on the score of equity as among the States and defects of the Commonwealth’s own tax system as the foundation of the new structure.
Although the Federal Government is justified in seeking the major objective, Ministers would be acting unwisely if they were to stand pat on the exact proposals as submitted. Parliament is entitled to an effective influence in formulating a scheme of such far-reaching importance without being hampered by old conventions about not amending financial measures without drastic consequences to the Cabinet. It is rather Parliament’s obligation to take an active part in the construction of a wartime taxing system that vitally affects the whole people in dual capacities.
Although the Premiers put up a valiant fight to retain the States’ powers of taxing incomes, and unanimously rejected the Commonwealth plan, any conflict over the issue of State rights would be distasteful to the great mass of the Australian people. The right of the Commonwealth, even obligation, to make first call on the country’s whole resources for the waging of war is indisputable. No interest can be allowed to conflict with that principle.
But the people are directly concerned in the equitable distribution of those resources that are to be given to non-war needs, even during the course of the conflict. The plan proposes that, in consideration of vacating the field of income tax, the States be reimbursed on the basis of the taxes which they collected in the last two years. Aggregate State revenues and, spending have both grown during the war, but the plan condones extravagant free-spending habits and penalises prudent management.
One effect is that New South Wales would receive annually £15,356,000, or £5 13/9 a head, and Victoria only £6,517,000, or £3 8/1 a head, a very pronounced discrepancy which would mulct Commonwealth taxpayers as a whole in the liabilities accruing from past prodigal spending and social service policies in New South Wales, and would import by a roundabout process Commonwealth discrimination among the States, which is expressly forbidden. The per-capita contrast with Queensland, which will receive an average of £5 14/11 per inhabitant, is even more marked.
It cannot escape notice that a tremendous area of incomes is either excluded from direct contribution to paramount war needs or is very tenderly treated. This category of earnings, relatively immune from direct taxation or obligation to make a proportionate contribution to war costs, has been greatly swollen by the vast disbursements on war industries.
The uniform-taxation plan applies, only to taxpayers at, present subject to Federal income tax. In other words, the person without dependants receiving up to £3 a week is not to be called upon to pay anything, and the existing immunities for, or light imposts on, incomes to £300 or £400 are to be preserved. The income of many households and families with individuals within this range has been greatly expanded by war employment; in many instances it may be found that only one person is making a direct contribution in income tax.
Lavish private spending seriously detracts from the picture of a country fighting for survival and organised for total war. Exemption at the lower levels is fully justified where there are dependants. But great numbers of beneficiaries from war industry and services are either married and without dependants or single persons with no obligations other than their own maintenance, in whole or part.
Before the selfish rush for clothes began, there had been evidence of heavy spending on non-essential and luxury purposes, wholly inconsistent with a maximum use of resources for war and showing a taxable capacity still untapped or very tenderly treated. Until action is taken to bring under tribute these huge aggregated earnings, in accordance with the Treasurer’s own dictum that contributions by taxpayers for Commonwealth and State purposes should be equalised according to the ability to pay, the proposals must remain open to criticism and amendment.
That does not imply any objection to uniformity as such. But in the proposed technique there is a discrimination that is scarcely subtle both among States and among categories of citizens having taxable capacity fully drained at certain levels, hut largely left immune at others.
The country looks to Parliament to work out in a non-party cooperative spirit practicable alternatives that would lessen defects while giving the Commonwealth the revenue-raising scope it needs. The job ought to be done without reference to adverse votes, defeats or threats of political crisis on vital amendments.
The per-capita basis of compensating the States, which was abandoned in 1927, would make for equity without impairing Commonwealth discretion to make special grants to States as circumstances warrant. Adoption of this principle would go a long way to overcoming basic objections to the present plan, which could be rendered more acceptable if the test of ability to pay income tax, or to make a contribution by compulsory loan, were to be applied equitably among all groups of income earners.
There would be no objection in Victoria if the Commonwealth were to make generous supplemental grants to the less populous large-area States whose taxable capacity is largely conditioned by primary industry.
If the plan were to be adopted in its present form, a sense of inequity would persist, and crude, rough expedients would take the place of sound, careful work that demands foresight as well as justice in the exercise of taxing powers.