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Wednesday, 18 February 1987
Page: 216

Mr SPENDER(10.06) —I move:

That regulation 4 of the Companies Regulations (Amendment), contained in Statutory Rules 1986 No. 247, made under the Companies Act 1981, be disallowed.

Madam SPEAKER —Is the motion seconded?

Mr Reith —Madam Speaker, I second the motion and reserve my right to speak.

Mr SPENDER — The issue raised by the new Schedule 7 to the Companies Act illustrates two enduring characteristics of the Australian Labour Party: First, that promises given in cynicism and kept in fear are made to be broken. When the Prime Minister (Mr Hawke) is forced into retirement at the next election he will be able to devote an entire volume of his political memoirs to the art of breaking political promises-in this case, the promise to lift the burden from business of unnecessary regulation.

Second, there is Labour's anti-business bias; the politics of envy still reign. Even the Treasurer (Mr Keating) slipped somewhat yesterday into the old anti-business approach of Labour when he started to assault millionaires. I am the last person to begrudge the Treasurer millionaire friends or millionaire associates. I suppose that they would regard his remarks as a temporary lapse of taste or style on his part. But it came out again: Somehow there is this great mass of people on top who are trying to damage and despoil the rest of the people in this country. Perhaps it was just a temporary lapse of nerves on the Treasurer's part.

We are moving for disallowance of the whole of Schedule 7 which replaces existing Schedule 7 for procedural reasons. We have to move for the disallowance of the whole of Schedule 7 or not move at all. Despite some sensible improvements in the new Schedule 7, the bad, the burdensome and the unnecessary, and the intrusive aspects outweigh the good. The Schedule should be withdrawn and redrawn, taking heed of expert criticisms given to the Government by organisations such as the Business Council of Australia, the Institute of Directors, the Australian Society of Accountants, the Institute of Chartered Accountants and the Australian Accounting Research Foundation. The new Schedule is a massive document. That in itself should have sounded warning bells. The old Schedule ran to nine pages and 13 clauses. The new Schedule runs to 26 pages and 40 clauses.

Schedule 7 to the Companies Act is of major importance to companies and to the Australian business community. It applies to all of the 600,000 or more companies in this country-from listed companies to small, privately owned companies and from single companies to groups which comprise hundreds of subsidiaries. The purposes of Schedule 7 are to lay down the rules for the preparation of the profit and loss accounts and balance sheets for all Australian companies. The basic principle is plain. Shareholders, investors and others who are entitled to rely on company accounts should be fairly informed of a company's financial position. In short, that means what a company has, what it owes, its profits and its losses. How is this principle to be achieved? Reporting requirements should be expressed simply and should be sufficiently flexible to accommodate the great variety of activities of Australian companies. They should not be overburdensome, they should not be unnecessarily intrusive and it should not be thought that there is only one public interest to be served.

There is a very great public interest in lifting the burden of unnecessary regulation from Australian business and in preserving such rights as the right of privacy. These interests are interests to which the Government ritually genuflects while ignoring in practice the rights of privacy and, in this case most importantly, the need to free business from the weight of oppression and unnecessary regulation. The Government's rec- ord on privacy is only too well known, most recently with the identification card, the most massive invasion of the privacy of Australians that this country has ever seen in peacetime.

Let me now go to one of the Government's so-called achievements, which I do in the context of business regulation. In May 1985 the Government established the Business Regulation Review Unit and once more we had a promise from the Prime Minister. He said:

Business deregulation is an issue which in the past has been long on rhetoric and lamentably short on action. But as has been amply demonstrated, we are a government prepared to get things done. As we have taken deregulation out of the `too-hard' basket. . .

Let me stop there and say that, having taken it out of the too hard basket, the Government has decided to entomb it, probably together with some of the papers relating to the Age materials and investigations touching others-not Mr Justice Murphy, but others. It has gone into the too hard tomb. The Prime Minister went on to say:

The Government appreciates that competitiveness is not enhanced where additional costs are imposed on industry through unnecessary regulation or excessive `red tape'. Wherever it is possible, such imposts will now be removed.

This was a speech made by the Prime Minister to the Business Council of Australia on 19 October 1985 and it is deeply ironic that one of the organisations to complain most bitterly about the lack of consultation and about the regulations imposed by Schedule 7 is that very organisation. When, may we ask, has this Government removed regulation? How much has it removed? In fact, the whole drift has been in the opposite direction. The odds are that when this Government's record is assessed it will be found to have imposed more unnecessary regulation and more intrusive regulation on Australian businesses than any other government in the same time span.

What is the weight of the burden of business regulation? Let me go to a report of May 1986 of the Business Regulation Review Unit, which was set up by the Government and extolled by the Prime Minister. It estimated that in the Commonwealth sphere alone some 16,400 public servants, excluding the Australian Taxation Office, the Australian Bureau of Statistics and the staff of certain research foundations, at an aggregate cost of some $700m per annum, were involved in business regulation; that adding in State and local government, the number of public servants involved in business regulation was between 40,000 and 80,000; that the total cost to taxpayers was between $1.8 billion and $3.6 billion annually; that the paper burden of cost to business of Federal and State regulations ranged between $3.6 billion and $7.2 billion; and that the estimated overall cost to business of Federal and State regulation was between $40 billion and $80 billion or the equivalent of 15 to 30 per cent of Australia's gross domestic product of $250 billion. These are obviously very rough estimates. In the nature of things, they have to be very rough estimates. But the dimensions of the problem are obviously huge. The cost to business is immense, and the burden on efficiency and competitiveness, at a time when we have to place a premium on efficiency and competitiveness, is great. Yet Labor's suspicion of the private sector endures. The rule is: `If you see a business, regulate it'.

The central problem is that regulations have been and are being thrust on business without the Government determining a clear and consistent basis for their justification. The basic premise should be that a regulatory burden should not be imposed unless a clear and compelling case has been established. The legislative bias should be against regulation and the general question should in all cases be: What are the facts and public interest arguments that are so compelling as to require regulation?

Some of the questions that must be asked before regulations are imposed, added to or changed are these: What are the public interest objects that the regulations are designed to achieve; what is the empirical data said to justify the regulations; what are the positive public interest arguments for and against regulation; what will be the paper burden costs and the compliance costs for businesses; have the businesses to be affected been adequately consulted and has account been taken of outside expert opinions; what mechanisms are to be used to review the cost and continuing usefulness of the proposed regulations; are the proposals framed in plain English; and are they so designed as to minimise burdens and costs? Unless these questions are asked and answered, burdens and unnecessary costs and constraints on business will inevitably increase. I can find no evidence that anything except perhaps the most casual attention has been given to these kinds of questions.

The Government, the chief member of the Ministerial Council for Companies and Securities which is responsible for Schedule 7, had the opportunity when redrawing Schedule 7 to do two things: Firstly, in place of regulating every detail of company accounts, and the accounts of listed companies in particular, to adopt the United States of America approach-simplicity and accountability. Let me quote from the Government's Green Paper on Schedule 7. It states:

Financial reporting requirements issued in the USA by the Securities and Exchange Commission are phrased very simply. The SEC relies upon the accounting profession (and its own review procedures) to ensure that the spirit of the requirements is observed.

What a very sensible approach that is and what a pity it is not adopted in this country. Secondly, the Government had the opportunity to replace the rigid requirements of Schedule 7 with legally enforceable accounting standards set by the accounting profession as independent experts. Let me quote from a letter to the National Companies and Securities Commission of February 1986, written on behalf of the Australian Society of Accountants, the Institute of Chartered Accountants in Australia and the Australian Accounting Research Foundation-in short, all the experts. It said:

The profession is firmly convinced that the medium of approved accounting standards should be the only mechanism employed by the Act for the regulation of financial reporting by companies.

Instead of adopting and taking advantage of these opportunities, what do we have? The views of experts on these critical questions have been ignored. The Australian Council of Trade Unions, the regulators and the zealots have won again. In place of one set of accounting standards, those approved by experts and by the professional accounting organisations, we will have in the Companies Act two different regulatory mechanisms-approved accounting standards and the requirements of Schedule 7. I quote again from that letter of February 1986, where this is said:

The existence of these two mechanisms . . . promotes duplication, complexity and over-regulation and may result in different, or even conflicting requirements being prescribed under the one Act.

Is that not a totally marvellous outcome after such an extensive review, commencing as it did with the Green Paper in 1983 in which principles were set forward, such as the one from which I quoted from the United States, which had a great deal of sense and which were ignored when Schedule 7 was finally drawn up? I repeat the words there used-duplication, complexity and over-regulation. They are the achievements of this Government. They are not my words but the words of the experts.

Let me now move to some particular objections. I will not refer to all of the objections to the new Schedule because time does not permit. First, disclosure in listed corporations: Directors must be identified by name, and total remunerations packages must be exposed. Absurdly this is to apply to every subsidiary of a listed corporation. Let me quote from a letter written by the Business Council of Australia to the Prime Minister in September 1986. It states:

Thus for a large enterprise with a number of subsidiaries (even inoperative subsidiaries) this could result in the disclosure of the remuneration of literally hundreds of executives.

The names of executives from middle management level could be disclosed. What will this do? It will generate a vast quantity of data of no use to those who are entitled to go to and to rely on accounts. It will constitute a gross invasion of privacy. I ask this question: What possible public interest is served by the disclosure of the remuneration packages of hundreds of executives at middle management level in cases where a listed company has-as is frequently the case-many operative or non-operative subsidiaries? The answer must be none, because nothing can be advanced in support of the proposition that one needs to know who is earning $25,000, $30,000 or $35,000 in one of the many subsidiaries of a listed public company. Incidentally, what is proposed is far more onerous and intrusive than the position in the United States or the United Kingdom where disclosure requirements apply only to the listed companies themselves. Let me quote briefly from the Business Council of Australia in its letter to the Prime Minister of September 1986. It said:

The Business Council believes that the objectives of the Ministerial Council could be met by limiting the disclosure required to: listed companies; an aggregate figure rather than identifying individuals; and disclosure in group accounts only in respect of directors of the parent company and not of subsidiaries.

Is that not a sensible answer? Why has it not been taken up? I suppose because the Australian Council of Trade Unions has said `No, we want to know all of the detail', and that appears to be the source from which this proposal comes.

There is as well an element-I do not wish to exaggerate it-of personal risk in the case of executive directors who are highly paid. We all know what that element of personal risk is. It should not be exaggerated, I repeat, but it is there. In the case of executives, again we have the situation where the five top earners are to be identified by name and the aggregate pay package is to be disclosed. Once again this is an unacceptable invasion of privacy, and once again there is the question of the element of personal risk. The basic point when one comes to executives is simply this: It is for the directors to choose executives and to determine what they should get. It is for the shareholders to sack their directors if they think the directors are incompetent, or if they believe the directors are paying people too much, or for any other reason at all. Once again, one could simply say that the top five executives, unnamed, earn an aggregate of so much-if one wishes to go down that path and if one thought it was necessary.

One other particular matter is the concept of economic dependency which applies in the case of listed companies. Let me read from clause 30 of the new Schedule. It reads:

Where the normal training activities of a company depend upon a significant volume of business with another party-

what is meant by `a significant volume of business' I should like to know-

and that dependency exists during all or part-

I suppose that means any part at all-

of a financial period, the accounts of the company in respect of that period shall include a note disclosing and explaining the nature of that dependency.

Why should that be disclosed? Disclosure of the economic dependency of one company on another could place the dependent company at risk of pressure from other companies, consumers and trade unionists. Why should economic dependency be disclosed, and how is it to be judged? In the terms `any part of a year' and `significant volume' we see the point of the criticisms that have been made and the need for simplicity, and to place the onus on the accounting profession to meet the spirit of accounting standards and to have enforceable accounting standards.

To sum up, despite some sensible improvements, what we see here illustrates the malign influence of the blind impulse to regulate. I stress again that the sensible course is to withdraw and to redraw. That could be done quickly so that no problems would be occasioned to any companies during this financial year. Time does not permit me to read from the relevant letter, but the complaint was made by the Business Council of Australia that the opportunity to consult about the new schedule was effectively over the Christmas period, and that was too short. We know that consultation over the Christmas period is a nonsense, because nobody is around. A further matter that can be added to the Prime Minister's memoirs on broken promises is: The facade of consultation and `how I sought to fool all the business people all the time but failed to do so'.

Madam SPEAKER —Order! The honourable member's time has expired.