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Thursday, 19 March 1987
Page: 1044
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Senator Walsh —On 11 November 1986 (Hansard, page 1861) Senator Watson asked me in my capacity as Minister representing the Minister for Primary Industry a question concerning logging in the Jackeys Marsh area. The Minister for Primary Industry has supplied me with the following additional information:

The Commonwealth Government did not claim that operations in the Jackeys Marsh area were not being carried out in accordance with the Jackeys Marsh-Quamby Bluff State Environmental Impact Statement.

Jackeys Marsh is listed for inclusion on the Register of the National Estate. Accordingly, forestry operations in Jackeys Marsh-Quamby Bluff are subject to specific clauses in the Memorandum of Understanding between the Commonwealth and State Governments.

The process of consultation to take place between both Governments in respect of the Jackeys Marsh area is outlined in Clause 27, which states in part ``the Forestry Commission will advise ways in which registered values have been taken into account and, if planning so allows will take account of comments from the Department of Primary Industry''. The State, before commencing logging did not give the Commonwealth an opportunity to comment or advise on ways in which registered values had been asked into account.

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Senator Walsh —On 13 and 20 November 1986 (Hansard, pages 2137 and 2603) Senator Haines asked me, in my capacity as Minister representing the Minister for Primary Industry, questions concerning the National Estate and in particular logging in the Jackeys Marsh area in Tasmania. The Minister for Primary Industry has supplied me with the following additional information:

On 15 December 1986, the Government announced that it would oppose forestry operations in contentious National Estate areas of Tasmania until it is satisfied that National Estate values are protected or there are not feasible alternatives.

With respect to Jackeys Marsh, the Government said logging could continue for the remainder of the season in the present coupe, as surveys of plant species had been carried out and steps had been taken to protect these plant species in the immediate logging area.

On 24 February 1987, the Government announced its decision to introduce legislation, relating to the Lemonthyme and Southern Forests areas, to establish a Commission of Inquiry to review the possible World Heritage properties of those areas. The Inquiry will also determine whether there are prudent and feasible alternatives to logging in areas found to have, or contribute to, World Heritage values.

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Senator Button —On 17 February 1987 (Hansard, page 72) Senator Lewis asked me the following question without notice:

Does the Minister agree that the tax burden on Australian businesses is one of the many factors holding back our manufacturers? What will the Government do about this burden on them?-

The answer to the honourable senator's question is as follows:

No. I do not believe that Australia's taxation regime imposes a comparatively larger burden on Australian manufacturing industry than the taxation regime of other OECD countries. Nor is it appropriate to compare Australia's corporate taxation regime with those of newly industrialised companies (NIC's) in Asia.

Government tax collections are, on average, a much smaller proportion of GDP in NIC's than is normal for OECD countries, due to substantially lower levels of government expenditure. The taxing policies of NIC's would not be transferable to Australia, nor indeed any western country where the level of Government provided infrastructure and social services is higher.

In any case, it is doubtful whether the adoption of some features of NIC tax regimes, such as Singapore's 10 year tax holiday for pioneer companies, would be in the national interest. There is some concern that tax holidays do not contribute to genuine industrial development but merely attract footloose foreign firms looking for tax breaks.

Overall, our effective company tax rate compares favourably with other OECD countries and is likely to be lower than the level that will apply to manufacturing firms in the US, UK and Canada under their new taxation regimes.

While Britain, Canada and the U.S.A. have lowered nominal tax rates on corporate income to around 35%, this has only been possible by broadening the corporate tax base, and creating a greater neutrality within the tax system. This has meant that many of the tax shelters and tax concessions upon which much of their manufacturing sector is built, have been or will be abolished.

For example, although the US Federal company tax rate has been reduced from 46% to 34% it is at the expense of the abolition of the investment tax credit and less generous depreciation provisions, the closure of many tax shelters, a higher capital gains tax and a statutory minimum tax of 20% on company profits. This means that company tax collections are estimated to rise by $120 billion over 5 years. For manufacturing industry in particular, the effective rate of tax is likely to actually increase.

In considering the impact of other countries' tax regimes, it is important not only to look at Federal company and personal income tax (or Dividend Withholding Tax) levels, but at the total level of income taxes imposed. Some countries, eg, the U.S.A., levy corporate and personal income taxes also at State and local levels. In the U.S.A., for example, in addition to the proposed 34 per cent Federal company tax, a State level company tax applies in most States which, although deductible against the Federal income tax, raises the average company tax burden to around 38 per cent. The remaining 62 per cent is taxed in most individual shareholders' hands at proposed rates between 28 per cent and 33 per cent. This leaves something between 12 per cent and 45 per cent of the original income which, in turn, may attract State and city taxes at rates exceeding 10 per cent. The total US tax will therefore often exceed 60 per cent without the benefit of accelerated depreciation.

Britain and Canada have also offset reductions in nominal corporate tax rates by scrapping accelerated depreciation and certain other taxation benefits, and consequently, their effective rate has not decreased.

Although Australia would appear to be going against international trends by raising the company tax rate to 49% from 1 July 1987, we have in place generous concessions such as the 5/3 accelerated depreciation and 150% deduction for Research and Development. In any case, the small increase in the tax rate merely compensates in part for the cost of the full imputation system that will alleviate eligible corporate income from double taxation.

Imputation reduces the overall tax rate on income generated by companies to a maximum of 49 per cent; dividends out of any such income freed from tax at the company level will be subject to personal tax in the hands of individual resident shareholders at a maximum marginal rate of 49 per cent. This contrasts with the situation in the UK, for example, where the partial imputation system taxes company income distributed to individual shareholders at rates of up to 63 per cent. The US has retained a classical system and full double taxation continues to apply to dividends. The US 15 per cent DWT rate alone applying to dividends to non-residents out of income subject to the proposed 34 per cent company rate, will lift that rate to 43.9 per cent.

Associated with the introduction of imputation are further reforms to business taxation, such as the abolition of the Division 7 tax on retained earnings and the 5% Branch profits tax. In order to pass the benefits of imputation on to foreign shareholders, and thereby increase the attractiveness of foreign investment in Australia, franked dividends (ie, dividends paid out of company income that has borne tax at the full statutory rate) will be exempted from the 15% dividends withholding tax when repatriated overseas.

A related scheme of major benefits to Australian high technology manufacturing industry as mentioned is the government's initiative with the 150% taxation concession for Research and Development. This is unparalleled in any OECD country, in both size and scope, and significantly reduces the burden of costs associated with research and development activity.

When the breadth of the income tax base, the interrelationship between the company and personal taxation, and the impact of State and local income taxation are taken into account, the Australian corporate taxation system is quite attractive relative to corporate taxation in other comparable countries. Imputation is the most important reform of business taxation undertaken by any Australian Government. When combined with accelerated depreciation allowances and the extremely generous 150% taxation concession for Research and Development, Australia will have a taxation environment very conducive to investment, particularly in capital intensive and high technology manufacturing industries.

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