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Thursday, 30 April 1987
Page: 2279


Mr STAPLES —I, too, would like an answer from the Treasurer if those opposite, as distinct from the Opposition, will be quiet. Considering the fact that some of Australia's biggest and most profitable companies are paying tax of much less than 20c in the dollar on their profits, and considering the recent cries of overtaxing and the threat to take operations off-shore by people such as John Elliott of Elders IXL Ltd, can the Treasurer inform the House whether the Government's business tax reforms can be expected to give cause for, or have the effect of, sending Australian companies and production off-shore?


Mr KEATING —The answer is in the negative. The point of the change to the foreign tax credits system is that, when decisions are taken to place Australian capital into productive enterprise, they are taken not for tax-driven reasons to send Australia's scarce capital off-shore to tax havens, but to reap a rate of return which would be advantageous against that which would be returned and employed in Australia. The very point of the foreign tax credits system is to be certain that, when a corporation makes a decision to place capital abroad, it does so in the face of its true earning potential here and not for tax-driven reasons.

Australia is one of the last countries in the developed world to introduce a foreign tax credits system. Most of the countries we trade with have such a system. The effective company tax rates are about where the Australian company rate is. The foreign tax credits system only applies to dividends when distributed back to Australia; it does not apply to retentions, it does not apply to retained earnings. But in countries such as the United States of America, Europe and Britain, where the effective company tax rate is about the same as that in Australia, there is no difference in bringing the money back here and having the rate taxed at the equivalent of 49 per cent; otherwise there would be a disincentive. In this part of the world where there are particular development opportunities, such as in Indonesia and other places, we have recognised tax sparing in the context of the foreign tax credits system.

Let me make this point about the remarks by Mr Elliott. He said that when the legislation is introduced he will make a judgment about it. Well, it was introduced in June 1986, it was proclaimed, and so the provisions were there. It was obviously a political remark made by him, but the point is that were he to take his corporation off-shore all the shareholders of Elders would be denied the benefits of imputation. He would deny to all the shareholders of Elders the removal of the double tax on Australian dividends. He would be saying, as a sort of a political statement `I will take Elders off-shore' but unless he went to Germany there is no other country that provides relief of the double tax on dividends. He would be pushing up the tax rate on Elders by taking it outside Australia.

He then made the puny point that there is not an imputation credit paid for income earned abroad. Of course, we will not provide Australian taxpayers with an imputation credit for credit paid to a foreign treasury.

If Mr Elliott wants to develop his corporation off-shore and maintain his base here, and he does so looking at the foreign tax credits system and placing his capital in places that he thinks advantageous to his company, that is fine. However, if that is done on the basis of moving his company because the tax rates are penal-the rates under the foreign tax credits system almost everywhere else in the world are comparable to those in Australia-all he would do would be to disadvantage Elders shareholders by denying them the purest imputation system in the world. Before Mr Elliott makes such a stupid, crass and politically inspired remark in the future he ought to think about his shareholders.

Honourable members have to remember that imputation is put on for shareholders; it is not put on for company managers. Mr Elliott is making the company manager point but he is not even making it well. The best advice I can give Mr Elliott is that he should decide whether he wants to be a politician or a businessman. If it is the latter, he ought to stick to business and keep his nose out of politics.