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Monday, 23 March 1987
Page: 1169


Senator HAINES (Leader of the Australian Democrats)(9.21) —As was stated by Senator Messner at the beginning of his contribution to this debate, the Commonwealth Guarantees (Charges) Bill 1986 gives force to a 1986 Budget announcement that Commonwealth semi-autonomous institutions would be charged by the Commonwealth when using a Commonwealth guarantee to secure borrowings. The intention of the charge is alleged to be:

to ensure the effective cost of borrowings to authorities is more directly comparable to that faced by private sector borrowers, thus ensuring that authorities take full account of the cost to the community of their borrowings.

I suppose we can say that this explanation is at least consistent with the much vaunted Government policy of reliance on market discipline to achieve the efficient use of resources although it is, as again Senator Messner mentioned, coming at a time of rising interest rates generally. So there is a certain irony to what the Government is doing.

According to the legislation, the rate to be charged for the Government guarantee, which is about 0.5 per cent, gives those of us who are more cynical than most the idea that the main reason for the charge is a revenue raising one rather than any real desire to bring some sort of equity into borrowing capacities and so on between the public and private sector. My staff and I have had conversations with a number of people involved in these semi-autonomous institutions that borrow using a Commonwealth guarantee. Almost unanimously they argue that that half a per cent is several times the market worth of the guarantee that they use. This is particularly true of the Australian Industry Development Corporation and Telecom Australia, both of which I would point out have a AAA rating in their own right, independent of whether or not they can and do use a government guarantee.

We would have preferred a more comparable increase with regard to the value of the guarantee of, say, a quarter of a per cent. But I gather that the Opposition regards this as a Budget measure and therefore something that has to go through come hell or high water. In any event, Telecom is requesting the Government to amend its statute so that the Commonwealth guarantee does not automatically apply to it as, of course, is going to occur once the Australian Industry Development Corporation Amendment Bill 1986, which we are debating cognately, goes through. As I said earlier, the AIDC, with a similar AAA rating to Telecom, is arguing that half a per cent is so far above the market worth of the government guarantee that it is not anticipating in future relying on the guarantees to secure borrowings. It will in fact, of course, because of the cognate legislation we are also dealing with tonight, have a choice as that legislation it to decide on the merits whether or not to take up the option of the government guarantee.

I think it is rather ironic that the AIDC advertisements that we have seen proliferating recently by way of full page write-ups in our newspapers have been able to make a selling point of the fact that `no fees, commissions, or hidden charges' apply to depositors. One wonders whether in the future it is going to have to pass on to the many Australian industries it has helped this new cost if it chooses to accept the option of a Commonwealth guarantee, cut interest rates to its depositors or add a sort of charge or fee for service to those people. I think it is worth looking at the sorts of organisations, industries and areas that the AIDC has assisted. The advertisement that I referred to earlier lists quite a number of recipients. In offering 16 per cent per annum at call it makes the following points:

AIDC is actively engaged in the development of Australian industry and Australian ownership in industry. AIDC provides finance and financial services to its clients.

It goes on to say:

With assets of over $2 billion AIDC works hand in hand with Australian industry, making a substantial contribution towards Australia's future. AIDC has made, and continues to make, substantial investments in manufacturing, mining, transportation, tourism and technology industries and assists in the promotion of new enterprises that have growth prospects. For example, AIDC has a one third interest in the Hyatt on Collins Hotel in Melbourne; AIDC is a major underwriter of AUSSAT, the satellite broadcasting and communications service which will be an important part of Australia's telecommunications system well into the 21st century, and AIDC has played a leading role in financing Woodside's participation in The North West Shelf Gas Project. These are just a few of AIDC's activities.

We are talking about a semi-autonomous institution, as these bodies are quaintly called, that has made a significant contribution to Australia's development and which one hopes continues to make a significant contribution.

As far as the specifics of this legislation are concerned, I would like to repeat the point that we think this charge is effectively a taxation measure, the tax being the difference between the actual value of the guarantee and the half a per cent being charged. Bodies whose loan raisings are subject to an automatic guarantee are the most disadvantaged by this legislation because they have to pay the impost regardless as they have no choice at all about whether to use the guarantee. It does not surprise me at all that Telecom is looking to get the same flexibility that the AIDC is going to be given through the accompanying legislation. I think we need to remember that something like 75 per cent of Telecom's loan raising are automatically guaranteed and that amounts to something like $750m this year. So, to be consistent with the stated intention behind this legislation, the Government ought to permit Telecom and the other semi-government institutions to elect whether or not a government will apply. In other words, if it is not just a fairly transparent attempt to raise a bit of revenue, the Government ought to extend the option of taking or not taking a Commonwealth guarantee to other semi-government institutions rather than simply giving that option to the AIDC.

The other obvious concern that we have is that if Telecom and the other institutions concerned effectively have to pay a tax on their loan raising, this cost is going to be passed on to consumers and that, of course, is only going to cause the sorts of problems that Senator Messner touched on with regard to consumer price index increases, inflation and so on. The other option, of course, is that it could result in a cut in Telecom services at a time when sustained high expenditure for development of those services is necessary. What these Bills reflect in general, as distinct from the specifics contained in the clauses, is an increasing panic in government circles at the general problem of interest rates. As I said earlier, the Government claims that its intention in imposing this charge is to ensure that the effective cost to authorities of borrowings, that is, to the institutions mentioned, is more directly comparable to that faced by private sector borrowers.

I would have thought that-and this was the interjection that I made, somewhat inaudibly apparently, to Senator Messner-that the Government would have been more concerned to remove those factors that increase the cost of borrowings, not only for the private sector but also for the public sector and for ordinary individuals and families in this country. As I have said almost countless times in this place, the Government could start by looking at why the domestic supply of finance cannot keep up with the demand from borrowers, and then do something to correct that problem. Among other things, it could take action to stop so much off-shore investment by Australian companies and, in particular, so much investment by the large life and superannuation funds.

I am not suggesting, as one of their executives accused me the other day, that I am trying to stop those institutions from investing off-shore; all I am saying is that if they are going to persist in investing off-shore, this Government should remove some of the costly-as far as revenue is concerned-tax concessions that are granted. The life and superannuation funds, for example, get tax free status on earnings. If we allow them to invest anywhere they like, but they do not get that status if they invest off-shore, maybe it would encourage them to act in a way that is much more in the interests not only of the people they represent but also of the country as a whole. At the moment, something like $4 is being invested off-shore for every $1 that is being invested on-shore. The inevitable result, of course, is speculation in the Australian dollar. It also means that domestic demand for finance exceeds the domestic supply; so interest rates are pushed up.

Furthermore, and again this is not a new suggestion, we could do something to lower our foreign debt if we removed the capacity to negatively gear on overseas financed non-productive takeover bids. We have seen a plethora of those in the last 12 months. Most of us are familiar with Robert Holmes a Court's $3 billion credit line when he was making his raid on the Broken Hill Proprietary Co. Ltd last year. Most of us are aware of the fact that the Bond Corporation borrowed something like $800m when it took over Packer's electronic media empire. Most of us are also aware that that money does not come for nothing, that the interest repayments are still a tax deduction and that this costs a significant amount to Consolidated Revenue when there is not one additional advantage given to this country by way of increased productivity, increased employment or increased export potential-and we have the disadvantages of a burgeoning foreign debt and considerable loss to revenue.

I suggest that by a couple of fairly simple measures the Government could take action not only to increase Consolidated Revenue, thereby decreasing the deficit-which I might add people seem to overlook; the conventional wisdom seems to be that we decrease deficits only by cutting expenditure, but there are other ways of decreasing the deficit-but also to remove loss to revenue through tax concessions, given to the sorts of enterprises that do not do anything to help develop the country. That is one way of doing it. As I said, by taking these sorts of actions it will increase available funds for lending not only to business-both private enterprise and the sorts of institutions we are talking about in the debate on these Bills tonight-but also to ordinary Australians, individuals and families.

If that happens, interest rates inevitably will fall. Who knows? We may even see some improvement in the attitude of foreign financial people to Australia as a credit risk. The dollar may even rise. If all goes really well we could see Australia regain its AAA rating. At the very least, we would have improved matters for Australian businesses, both public and private, and for the Australian individual or family, farmer, home owner or whoever, who is currently being pushed to the wall by increasing interest rates and demands from the banking sector to further increase them or be bought off by the Government yet again-all of which is doing nothing to improve Australians' confidence in Australia or international confidence in our economic condition or, indeed, our potential for growth and development.