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Wednesday, 20 May 1970

Mr SINCLAIR (New England) (Minister for Shipping and Transport and Minister assisting the Minister for Trade and Industry) - The Government does not propose to accept either amendment, but I wish to speak briefly on them. The honourable member for Mitchell (Mr Irwin) suggested that his understanding of the application of clause 8 as it now exists is that in no instance could the Australian Industry Development Corporation lend money on sound business principles. I assure the honourable gentleman that that is one of the distinctions between this Corporation and any other operating in the financial sector as a bank. This will not be a bank. The Corporation will not lend money. It will reinvest money that it borrows specifically for particular projects. As the honourable gentleman mentioned recently, the extent to which the Corporation is dependent upon borrowing moneys, principally overseas, will ensure that if the rale of interest moves as it has in the last few years, no doubt for many propositions there will be more attractive interest rates available. Consequently, in the normal run of business judgment a company would not turn to the Corporation first for any required funds unless it sought to fulfil certain objects.

The first amendment moved by the honourable member for Lilley (Mr Kevin Cairns) referred to an addition to the end of clause 8 (2.), which is intended to ensure specifically that investments made by the Corporation were last in the queue. The reason why the Government does not accept the amendment is that possibly sufficient restraint is placed on the Corporation by the application of clause 8 (3.) (a) which ensures that the Corporation shall nol provide assistance to a company except at the request, or with the consent, of that company. In other words, the Corporation is not intended to canvass business, lt is required specifically to comply with the constraints that are written in the measure. Because the Corporation will be raising its money in these fairly difficult overseas money markets - as I explained a moment ago in reply to the honourable member for Mitchell - more often than not it will be the last resort. For that reason I do not believe the amendment to be desirable or necessary. If the fulfilment of its objects were to be included, it may well preclude a desirable investment which is fully within the objects of clause 8 sub-clauses (1.) and (2.). For that reason I do not believe it to be desirable and the Government does not propose to accept it.

The honourable member for Lilley suggested but did not propose an alternative - that the Corporation pay a dividend. I do not believe that a dividend is appropriate to this Corporation for 2 reasons. Firstly,

I believe it is necessary that the Corporation be kept completely at arm's length from the Government. The whole object of the constraint of this Corporation is such that by keeping it at arms length we will be able to ensure that it operates within the ambit of what we would regard as private enterprise. Consequently, it is being kept at arms length by not being required to pay a dividend.

The second point is that I think it is also very necessary that the Corporation have the capacity to augment its capital. It will augment its capital and its borrowing capacity not only in accordance with its subscribed capital but also in accordance with its reserves. One way by which it can increase its reserves is by investment which will progressively, one would hope, increase in value. There is no doubt however that in the early years many of these investments will not necessarily increase at a reasonable rate. Consequently, it would be very difficult to determine just what sort of period would be necessary before they in fact became profitable. It is for that very reason that we have the restraining provision that investments be made in accordance with sound business principle and in accordance with the general objectives which are directed towards maximising Australian equity.

The third point 1 make about the Corporation paying a dividend is that it is essential that it be kept divorced from the normal budgetary allocations that might well follow if it is necessary for the Corporation to pay a dividend and to remit funds regularly back into the Treasury so that it can then be said that it needs to turn to the Treasury whenever it needs to increase its capital. The pattern of operation of the Corporation is such that it is intended to be kept completely at arms length so that the capital which is subscribed cannot be used for the general investment propositions for which the Corporation is constituted. Only the borrowed funds will be used for this purpose.

The Government does not propose to accept the second amendment. I understand that one honourable member has expressed concern that the Corporation might hold a greater percentage of equity shareholding than the spirit intends. The object of this amendment is to alleviate that concern. I do not believe there is any justification for this concern. The Bill is so framed that the Corporation is not in a position ever to seek a controlling interest. The Bill instructs the Corporation at least once a year to review its portfolio of holdings and to divest itself of such holdings as are no longer necessary to be held to secure the objectives of the Corporation. That instruction is contained in one of the succeeding sub-clauses. Therefore, under the Bill as drafted, the Corporation will be required once a year to make a judgment as to whether there are grounds to continue to hold equity shareholdings. These instructions go to the Board of Directors, the majority of whose members will be part-time directors appointed because of their experience in private enterprise. The Government would not wish to circumscribe the judgment of the Board of Directors by stipulating the percentage of equity capital which the Corporation may take in any venture.

It is not desirable that the amendment be accepted. The request and consent provisions that are inserted in clause 8 (3.) (a), I believe, provide some protection. I think that such a restraint as this amendment would involve could deny a company assistance in circumstances where something more than a 10% or 15% equity held by the Corporation is eminently desirable from the point of view of that company and, indeed, would in that way preclude an investment in a corporation - not this Corporation but a corporation in which the AIDC is investing - which has specifically made a request. The restraints requiring that equity be noncontrolling, transitory and tapering will ensure that the Corporation will not maintain a permanent equity. For that reason I do not see that this amendment would contribute towards the efficacy of the Corporation. Therefore the Government does not propose to accept it.

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