House of Representatives

Income Tax (Arrangements with the States) Bill 1978

Income Tax (Arrangements with the States) Act 1978

Second Reading Speech

by the Treasurer, the Hon. John Howard, MP

The broad purpose of this Bill is to enable each state, if it so chooses, to legislate to increase its revenue from personal income tax or to give - at a cost to the state - a rebate on personal income tax to residents in the state.

The Bill is basically the same as the Income Tax (arrangements with the States) Bill 1977 which, as Honourable Members will recall, was introduced into the Parliament late in the 1977 autumn sittings.

The Government, however, did not seek passage of the Bill in those sittings, its intention being to allow time for reflection and informed debate and, in particular, for consideration of the Bill by the State Governments.

The 1977 Bill subsequently lapsed with the dissolution of parliament on 10 November 1977.

The Government has given the States considerable opportunity to comment on the 1977 Bill and, after careful consideration, has agreed to certain changes being made to the Bill to meet the points raised by the Premiers.

This Bill also differs from the previous Bill in that a number of minor technical and machinery improvements have been made.

The Government regards this Bill as an important development in Commonwealth/State relations.

The Bill completes the Legislative framework of the tax sharing arrangements which are a central element of the Government's Federalism Policy - a Policy aimed at restoring a proper distribution of powers and functions between the Federal, State and Local spheres of Government, with Governments more responsive to the needs and preferences of the community.

The Government believes that this approach offers the best protection against concentration of power in Canberra.

Stage 1 of the Income Tax sharing arrangements established in legislation passed in 1976 provided for the States to receive 33.6 per cent of personal Income Tax collections. In this connexion, Honourable Members will recall that the House recently passed an Amendment Bill which is currently in the other place and which provides for the States to receive a fixed amount of $4336.1 million in 1977-78 and for their tax share from 1978-79 onwards to be 39.87 per cent of the preceding year's collections. These arrangements have replaced the old system of handouts with one in which the concept is the sharing of Tax Revenues.

Under the present Government, the States have received what they have been seeking for many years - a share of Income Tax Revenues.

Stage 1 of the Tax Sharing Arrangements was an important step towards more responsible Government in Australia - and the restoration of a proper balance in our Federal System.

The present Bill will enable the implementation of Stage 2 of the Tax Sharing Arrangements, and thus represents a further major step towards this objective.

Under these proposed Stage 2 arrangements each state will be able to vary, by its own decision, its total share of Income Tax collections.

The States will thus have more effective control of their own revenues as well as their expenditures.

Because responsibilities for revenue raising and spending will be more clearly recognised by the Electors, there will be a greater incentive towards better housekeeping.

However, it would seem from recent comments by some premiers that some States are unwilling to accept a greater share of responsibility for raising the money they spend.

All the Commonwealth can do, and is seeking to do, is to provide the necessary framework to enable the States to help themselves.

The next step is up to the States.

A broad framework for Stage 2 of the Tax Sharing Arrangements - the subject of the present Bill - was evolved and agreed during the three Premiers' Conferences in 1976 and recorded in the points of understanding set out in Budget Paper No 7.

The Stage 2 arrangements have also been the subject of joint Commonwealth/State Officers' reports including a report which was considered at the Premiers' conference in April 1977.

At that conference there was broad agreement on the following objectives which have been followed in the Draft Bill:-

first, there should be complete uniformity as between the States in all respects other than rates of any surcharges or rebates;
second, the arrangements should be free of any significiant constitutional or other legal doubt;
third, the scheme should be as simple and inexpensive to administer as practicable consistent with legal requirements and the other broad objectives being followed;
fourth, the arrangements should impose the least inconvenience practicable on taxpayers and employers; and
fifth, the arrangements should be such as to avoid creating avenues for tax avoidance or evasion.

It was also agreed at the April 1977 Premiers' Conference that Commonwealth Officers would consult with officers of Victoria and Western Australia regarding the Commonwealth's Stage 2 Legislation and I record the Commonwealth's appreciation of the co-operation of the States.

Before turning to the detailed provisions of the Bill I wish to deal with the constant assertions of our political opponents that the Stage 2 arrangements amount to some form of 'double taxation'.

the first point to be made is, of course, that this legislation puts no compulsion on the States. It merely provides the framework to enable the States, as they may choose, to pick up taxing or rebating options. Only when a State chooses to impose a tax or allow a rebate, and legislates accordingly, will this legislation be brought into use. Some premiers, as is well known, have urged the Commonwealth to reduce income tax. The enactment of this legislation will allow those Premiers to reduce income tax in their States.

The second important point to be made is that, under this legislation, there will at all times remain one collection and administrative agency. Taxpayers resident in any State will still lodge one annual return of income with the Commissioner of Taxation and will receive a single notice of assessment on which Commonwealth and State components will be shown.

There will be a single P.A.Y.E. deduction from salaries and wages for Commonwealth and State purposes. In plain terms, there will be no additional forms to fill in.

Thirdly, the States traditionally levy a wide range of taxes and charges. There is nothing new in identifying a tax as a particular State tax. The transfer of payroll tax to the States is an example.

I turn now to the detailed provisions of the Bill.

It has four main parts.

One part - Part V - gives authority for the Commissioner of Taxation to administer State tax and rebate laws that meet certain specifications set out in another part - Part II - of the Bill and provides for payment to the States of what is collected by the Commonwealth on their behalf. It also deals with a number of miscellaneous matters.

The other two main parts contain technical and machinery amendments to the Income Tax Assessment Act and other Acts.

Part II of the Bill calls for some comment.

In drawing it up we have worked within the framework of principles agreed at successive Premiers' Conferences and have taken into account wherever practicable suggestions for changes made by the States to the provisions of the previous Bill to which I have referred earlier.

In essence Part II of the Bill is directed to ensuring that the objectives of uniform administration are practical and met.

For example, it would be expected that each State would increase or reduce tax only in respect of people who are residents of that State, according to a common definition of "resident".

In that way, no-one would be liable to tax in more than one State in any one year.

Again, in the interests of simplicity, a State that wishes to impose a tax or allow a rebate will need to legislate in such a way that the State law can operate in harmony with the Commonwealth tax law.

As a consequence, State tax would be collected through the P.A.Y.E. and Provisional Tax Systems that are now a settled part of the Commonwealth Personal Tax System.

Tax owing to the Commonwealth and to a State will be collected by the Commonwealth as a single, undivided, sum, with the State being paid its share of what is collected.

It is because Commonwealth and State tax will be collected in this "merged" way that it is necessary, as set out in clause 79, for an appropriation to be made to enable payment to the States of amounts collected by virtue of State law.

Finally, the magnitude of the activities of Federal, State and Local Governments should be put in true perspective.

In the current financial year, on the basis of Budget Estimates, State and Local Governments will have under their supervision no less then 53 per cent of total public sector outlays in Australia.

The approximate percentage break-up is:- Federal: 47 per cent, State: 46 per cent, Local: 7 per cent.

It is vital to the full understanding of intergovernment relations to appreciate the very significant role of State and Local Government in public finances. The idea that two spheres are small and insignificant in the overall economic and social scene is a misconception.

Mr Speaker, the detailed provisions of the Bill are fully explained in a memorandum that is being circulated to Honourable Members.

I commend the Bill to the House.