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Monday, 23 March 1987
Page: 1175


Senator VIGOR(10.01) —The Commonwealth Guarantees (Charges) Bill 1986 introduces a new tax, as we have been told on a number of occasions tonight. The Australian Industry Development Corporation Amendment Bill 1986, which we are debating at the same time, makes certain that this tax need not necessarily be applied to the moneys which flow through the hands of the Australian Industry Development Corporation. The Commonwealth guarantee for the AIDC has been in place since the AIDC legislation was amended in 1983. In regard to the other authorities there have been similar changes since the advent of the Hawke Labor Government. To this point the statutory authorities, including the AIDC, functioned without the benefit of an explicit guarantee from the Government; it was an implied guarantee. Through this Bill the functions of statutory authorities will simply revert to the pre-1983 situation, except that they will now have to pay a charge if they call upon the guarantee.

The AIDC was set up to facilitate and encourage the establishment, development and advancement of Australian industry and to encourage Australian ownership of Australian industry. It is classed as a development bank. It is a merchant bank, but it had some aims which were slightly different from the general run of merchant banks. The AIDC borrows funds in financial markets in Australia and overseas at minimum cost, while maintaining an appropriate spread of borrowings and maturities and a controlled risk exposure. It finances and invests in high risk ventures. It is actually helping the development of Australian industry. It is a very important aspect that it should have a slightly different approach to its financing operation than a standard merchant bank approach. The AIDC achieves these objectives by providing risk capital for new businesses and entrepreneurs, and for restructuring or expanding existing industries. The AIDC also promotes such developments by providing advisory services, and has a positive role to play in ideas formulation and in producing active development programs in new and infant technologies.

The Corporation has been operating successfully in a deregulated and intensely competitive financial market, despite a subdued investment climate. In these conditions the AIDC achieved net profits, after tax, in 1985-86 of $19.1m. Out of the after tax profits at the end of the financial year 1985-86 the Corporation paid $8.6m to the Commonwealth, which represented a return of 9.8c per dollar of capital invested. The last year has been another year of dramatic growth for the Corporation. Financial commitments to Australian industry have more than doubled for the second successive year. The Corporation's new commitments rose to $1,599m-an increase of 112 per cent over the last year. This is nearly six times that of two years ago, as Senator Short said. The AIDC's loans as at the last balance date totalled $2.2 billion, with development banking assets of $2,011m and development investments in ordinary equity of $91m. Of this, $42m is pure venture capital investment. The AIDC activities contributed to the desirable growth of Australian manufacturing, resource and service industries, with emphasis on export and international competitiveness. It is extremely important that this should continue.

The charge that is proposed in the Commonwealth Guarantees (Charges) Bill is 0.5 per cent. The highest estimate of the value of a government guarantee to these corporations is about 0.2 per cent of loan funds. So, even if we looked at commercial guarantees, there is a 0.3 per cent component which is just raw tax. That tax will actually be passed on by the AIDC to the companies which it has been set up to help. These are the burgeoning manufacturing companies-companies such as the whitegoods industry and the wine and automotive support industries, which it has helped particularly-to make certain that new developments actually happen and are advanced in Australia rather than being directly imported from overseas.

The dramatic growth in the Corporation's activities over the past few years could not have occurred unless there was a growing demand in industry for the skills and services that the AIDC has offered. With a government in favour of deregulation and an opposition which seems to believe that privatisation is a solution to most of Australia's economic problems, I would indeed want to support the role that the AIDC has been playing.

I believe that the list of companies in the Commonwealth Guarantees (Charges) Bill is a list that may be under risk of being targeted for privatisation. We find amongst them Aussat Pty Ltd, the Australian Telecommunications Commission, the Commonwealth Serum Laboratories Commission, the Health Insurance Commission, the Pipeline Authority, Qantas Airways Limited and the Snowy Mountains Engineering Corporation. All of these organisations at some time have been thought of as being targeted for privatisation. The Australian Democrats would not support that type of activity, as we believe in a strong public sector and a strong private sector in a mixed economy. We do not believe that the straight impost of 0.5 per cent which is being imposed on those companies selectively in the public sector by the Government will be anything but a direct charge which will go through the operations of the company, be charged to every consumer, and contribute substantially to inflation in Australia.

I do not believe from experience that the existing private banks are willing to provide the financial assistance that is needed for Australia to develop a strong trading, industrial and technological infrastructure. It is important that the Government be involved in this area. All of these companies are offering that type of backbone to the Australian economy. It is crucial for Australia to have an organisation such as the AIDC which can foster Australian enterprises and ideas so that these may be kept and developed in Australia and the benefits flow on to all Australians. Now, more than ever, it is especially important that we aim to reduce the level of foreign ownership of our resources, otherwise the value added on all the products that we are extracting will be repatriated to that organisation's headquarters overseas. If we do not control the technology, we do not receive the benefits from that technology. The AIDC gives us an opportunity to be able to control Australian technology in Australia.

The AIDC supports Australian ownership of Australian industries. It has played a leading role in the commercialisation of new and improved technologies in Australia by providing specially tailored financial packages and management expertise directly related to the needs of Australian conditions. It also adopts an ongoing supportive role designed to see a venture firmly established as a viable entity with a sound future. With all the recent suggestions that privatisation of Australian Airlines and of other statutory authorities is being considered by the Government, I wonder whether the schedule in this legislation contains a hit list of concerns that eventually will be at least part privatised.

Senator Short's statements suggest that we may be facing such a prospect if the Opposition ever reaches government. I say to Senator Messner that I do not believe it is in the interests of all Australians to sell off those aspects of our economy which are profitable and to leave only in the public sector those aspects which are not profitable. It is eventually the taxpayer who has to cover those charges. This legislation is putting a direct charge on those corporations in the private sector which they will pass on to their consumers, hence making them less attractive to their clients than their private counterparts where they have not got monopolies, as is the case of Telecom Australia.

I would like to examine some of the effects of this legislation on the AIDC and other statutory authorities. The fundamental purpose of the AIDC is set out in the 1970 Act is to assist in the provision of financial resources required by Australian companies to encourage and develop industries mainly in the manufacturing, processing or treatment of goods or in the recovery of minerals. Legislation enacted in 1983 extended the Corporation's role to include all industries, including the service industries and industries developing technologies. These will indeed be important to future employment growth in Australia as well as to foreign exchange earnings. We have no such control over any of the other merchant or development banks in Australia. Even the Commonwealth Development Bank has somewhat wormed itself out of this activity. The amended Act also put new emphasis on promoting the creation of new industries and enterprises that have good growth prospects-sunrise industries. It helped facilitate reconstruction of existing industries for greater long term viability and competitiveness. There was no change in the Act regarding the commercial operations of the AIDC in 1983.

To help the AIDC achieve these objectives, a Commonwealth guarantee was given under section 35 of the Act. That gave it an advantage-which was about all the Government was giving it-over other banks. Now it is being charged over the odds for that guarantee, and I am told that the Corporation is unlikely to use this facility. I have managed to obtain from the AIDC's staff some type of indication that the Corporation can only borrow with a guarantee at about 0.1 per cent lower in the market-place, despite the estimate of 0.2 per cent implied by the `value of the guarantee'. Somewhere between 0.3 and 0.4 per cent of the loan of this clawback by the Government is just raw tax. The Government says that the main consequence of the charge will be to ensure that the effective cost of borrowing to the statutory authorities is more directly comparable with that faced by private sector borrowers.

If we are putting the AIDC and these other organisations under the same financial pressures as those faced by private sector operations and still imposing on them the requirement of having to be responsible to parliament, we are disadvantaging public sector organisations compared to their private sector counterparts. They have extra costs which the private sector components do not have in terms of their accountability requirements to government. In reality, with the fluctuations in interest rates in the market-place, especially the crippling rates that we now have, we need to inquire which rates for statutory authorities are borrowing rates to be compared. If the comparison of rates is between the AIDC or other statutory authorities and the rate charged to merchant banks, then the rate differential is the real value of the guarantee. In practice, the effect on the Corporation's operations of having the Commonwealth guarantee is negligible, and therefore the authorities are paying the same rates. We are reliably informed that the effect for medium to long term bond issues is worth about 0.1 per cent, but for the short term it is almost non-existent. There is a definite disadvantage.

If the Commonwealth Guarantees (Charges) Bill passes, which will no doubt happen unfortunately, because the Opposition has taken the mindless view that it is a Budget measure, and the Government is determined to push it through, the Democrats can do very little. However, we certainly support the AIDC having the option to opt out. I believe that the Government is unlikely to get any revenue from the AIDC through this type of measure because it is just not economic. The AIDC will not take up the guarantees, and hence they might as well not be there. Therefore, the second Bill is fairly useless whereas the first Bill is just a taxing measure.

The various Finance Department fund-raising regulations of the statutory authorities specify the type of fund raising that the authorities may engage in. Telecom, Australia Post, the Australian Capital Territory Electricity Authority and the Snowy Mountains Hydro-Electric Authority come under Parts A and D in the schedule to the Commonwealth Guarantees (Charges) Bill. They have an automatic guarantee that is applied to some borrowings only. In these cases the regulations are such that for certain types of borrowings, such as issue inscribed stock, there is a requirement for an automatic guarantee. If the authorities decide to issue bonds, then no guarantee applies. Thus, it becomes a market decision as to the type of borrowing activities that these authorities use. In fact, this Bill will distort the options that are open to those authorities because they will probably select, on the basis of our figures, as the optical market choice, a method that does not carry an automatic guarantee. If they choose the guarantee, then that price will automatically flow on to the various people they are serving.

Hence, the statutory authorities whose market decisions have in the past been optimal methods which carry an automatic guarantee may now be even further disadvantaged by the charge. They may now choose less appropriate methods with a high opportunity cost rather than pay the charge to the Government. For those authorities whose loan raising activities carry an automatic guarantee the charge will add yet another burden, which has no other place to go but to the consumer. This will either make the authorities uncompetitive in the market-place or simply raise their monopoly prices. They will now be forced to pay through the nose for the privilege of having a guarantee which was given to them to help revitalise Australian industries, or possibly to meet various social objectives such as making services available to Australians at a reasonable cost. I uphold that costs will definitely be passed on to the consumer. Perhaps consumers will see a rise in the cost of postal charges or in electricity prices in the Australian Capital Territory. Telecom's policy decision to charge for directory assistance may even be directly traced to this type of measure. It may be one of the first of the avoidable imposts which the Government is putting on people by way of the back door through this Bill.

The Government estimates that the revenue raised by the charge on the AIDC will be $3.4m in 1986-87. I wonder how the Treasurer (Mr Keating) estimated that that amount of revenue would be raised because it certainly will not be raised at all if the AIDC does not take up the guarantee. That is what I would do-not use the guarantee-if I were in the commercial position to apply this Bill. The Commonwealth Bank will be faced with a levy of 0.25 per cent on long term borrowings. In the past overseas borrowings tended to be more medium to long term; that is, more than one year. However, with the prevailing economic conditions, a larger and more profitable short term market has evolved in which the Corporation has become more involved. For the levy to be imposed on long term borrowings of more than one year, when the main activity is now in the short term markets, common sense tells us that the optional charge will not raise the expected revenue for the Government from the Commonwealth Banking Corporation either.

It appears that the Government is using an `efficiency' argument as an excuse to impose an extra charge. With the decline in the economy, it is hunting in every nook and cranny for funds. Maybe the Government has taken heed of the view of the Economist of 21 March 1987 which stated:

Australia is a third world economy with a first world standard of living which risks becoming a third world economy with a third world standard of living.

These Bills are an indication of the extent to which the Government will stoop to dredge new sources of revenue. The pity is that it will not touch more substantial areas, such as the tax deductibility of tobacco promotions, the problems of transfer pricing, negative gearing on takeover capital nor the tax rorts of the large corporate sector that is currently being subsidised through `corporate welfare' through which this Government and the Opposition are willing to support the private sector. The Government wants to cut welfare to individuals and hand it over to corporations. That is quite unsatisfactory.


Senator Siddons —It is scandalous.


Senator VIGOR —It is scandalous, as Senator Siddons says. To redress the current situation of depressed world prices for commodities, both agricultural and mineral, and the severe adverse effect on the Australian balance of international payments and the Australian economy generally we need a vigorous effort. This Bill is moving in the wrong direction. It is taking money away from areas which are helping the development of the Australian community and industry. Telecom, with Aussat Pty Ltd and the Overseas Telecommunications Commission, can actually help the development of an Australian electronics communication industry, if it is given a chance. But the Government is clawing back money all the time-$92m in loans last year and now this type of slow claw back of funds through the 0.5 per cent on the guaranteed loan funds. Even the loan funds are being hit at.

We oppose the imposition of another government charge on authorities which when passed on will mean than prices will rise for ordinary Australians. That is the scandal of this legislation. As we know that both the Opposition and the Government will vote to pass this legislation, the Australian Democrats will not waste time tonight with any sort of grandstanding. Suffice it to say that if the Democrats were in government we would offer some real solutions. We would actually offer incentives to small Australian industry. We would allow the AIDC to continue with the socially and economically useful aspects of helping out small industry which it was set up to do. We would not support all this drizzle of little taxes which are gradually drenching industry and putting out the flame of enthusiasm which could have existed in Australia. I believe that it is a scandal that the Government is trying every possible way to raise taxes indirectly. This is just such a measure. It is a mindless measure which actually achieves the opposite of what Senator Button is trying to do in his innovative industry plans.


Senator Siddons —It shows a bookkeeper mentality.


Senator VIGOR —Yes, it shows a bookkeeper mentality, as Senator Siddons says. I believe that the Government would get much more return if it were prepared to invest in the future and not try clawback operations of this type. We must start controlling as much of the technology that we use as possible in order to generate the greatest possible national wealth. Imposing a charge as a revenue raising exercise will hinder the AIDC's ability to achieve its objective as effectively as its present performance indicates. If it has to go to other means and does not use the Government guarantee, the Government will not get the revenue and the AIDC will be less efficient. If it does use the guarantee, the charge will hinder the economy by putting that burden on small entrepreneurial industry. This charge will also hinder the statutory authorities in achieving competitiveness in the market-place and will place yet another burden ultimately on the consumers in the form of higher costs.

I suggest that this legislation is nothing more than a raw taxation measure, the charges from which will boost prices in the community. I am thoroughly disappointed with the fact that both the Government and the Opposition are indistinguishable in supporting this extra burden on every ordinary Australian.