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Wednesday, 19 November 1986
Page: 2487

Senator ELSTOB —Has the attention of the Minister representing the Treasurer been drawn to the transcript of an interview by Mark Day of Opposition Leader John Howard on Melbourne radio station 3AK on 13 November? I refer to Mr Howard's remarks to the effect that people must be given encouragement and incentives to invest. Are Mr Howard's statements correct and are government tax reform measures, such as the capital gains tax and the fringe benefits tax, discouraging investment?

Senator WALSH —The answer to the last part of the question is dependent upon how one defines the word `investment', which is highly relevant to the transcript of interview in question. Senator Elstob in his question referred to `productive investment', and that is a critical distinction. It is investment in the sense that economists normally use it; that is, the expenditure of money on equipment, upgrading land or construction activity which will produce ongoing new additional income. It is quite different from the more commonly understood concept of investment, which is just putting money in the bank or buying some non-reproducible asset such as shares in a company. That is an extremely important distinction because nothing is produced. Expenditure on shares of the type which just changes the ownership of shares is not productive investment in the real sense. For example, recently we have seen a lot of company takeovers per se, one of which was written about by Terry McCrann in the Age of 15 April this year; that is, the Elders takeover of Henry Jones to form the merged company Elders IXL Ltd. Mr McCrann wrote-I stress `Mr McCrann wrote'-and published six months ago these words:

Shortly before Elder Smith unveiled its bid for Henry Jones, the leading executives in Henry Jones outlaid $19,000 in taking up 1c paid shares under an executive incentive scheme.

The Elder Smith offer delivered a clear-tax-free-profit of $4.16 million to those executives. Mr Elliott himself cleared $657,000 on a $3,000 outlay.

No productive investment at all took place from that transaction. Nothing was produced except personal gain for Mr Elliott and a number of other executives.

It is true, of course, that the capital gains tax is likely to act as some sort of deterrent to that sort of non-productive investment; but to productive investment, it will not act as a deterrent at all. Indeed, all the criticisms that have been levelled, principally by the Opposition but also by some other fringe groups, particularly the far Right or New Right, do absolutely nothing to address the country's fundamental economic problem, and that is the size of our current account deficit. None of the undertakings for change which the Opposition gives really address that question. What bringing back the tax deductible Mercedes, the boozy free lunch, paying pensions to millionaires or allowing tax free capital gains for paper entrepreneurs who set up chains of share ownership deals will do to solve this problem remains a great mystery.